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Kevin Lorenz: Good afternoon, ladies and gentlemen, and welcome to WashTec's conference call on the Q3 results 2025. My name is Kevin Lorenz, Investor Relations Manager at WashTec. And with me today, I have our Chief Operating Officer, Michael Drolshagen, who will provide an update on the current developments at WashTec and our Chief Financial Officer, Andreas Pabst, who will guide you through the results of the first 9 months. Following the presentation, the floor will be open for questions. [Operator Instructions] Of course, this call will be recorded and made available on our Investor Relations website. With that, I'm handing over to our CEO, Michael Drolshagen. Michael Drolshagen: Ladies and gentlemen, thank you, Kevin, and a warm welcome to WashTec AG's earnings call for the third quarter of 2025. My name is Michael Drolshagen, I'm CEO and CTO of WashTec AG. Before my colleague, Andreas Pabst presents the figures for Q3 2025, I would like to present to you the most important recent developments. Let's start by looking at the general economic environment in our core markets, the U.S.A. and Europe. In Europe, we are seeing the first signs of recovery, but uncertainties remain due to geopolitical risks and protectionist measures. In the U.S.A., new tariffs and a weak dollar are making export conditions more difficult, while demand for capital goods remains stable. Due to the low level of exports to the U.S.A. shown in the last call, the risk for WashTec is low. General economic growth is suffering from the current trade barriers, which is also reflected in the lower market forecast for Europe and the U.S.A. for 2026. This means that WashTec's challenge going forward, such as subdued investment willingness. But given the current order backlog for WashTec, we remain positive. This is supported by our digitalization and sustainable technology offering, which gives us great opportunities for differentiation and growth. Let us take this opportunity to take another look at the core of our strategic orientation and where we currently stand, our house of strategy. Our increasingly smart products form the basis of our business model. However, we go far beyond this by bundling these products into modular tailor-made solutions that are precisely tailored to the needs of our customers. The focus is on the entire customer journey from the initial contact to long-term support. We offer complete solutions from a single source, machines, chemicals and software. With the scope configurator launched in Germany in August this year, we can now configure our products in the same way as a car and create bundles with chemicals and services. This not only makes the job of our sales staff easier, but also gives our customers greater transparency and streamlines the entire process from order creation to machine installation. In the coming months, we will roll out this solution to all markets and also integrate all our products. Our digital products enable intelligent payment and control systems, data analysis and performance optimization as well as customer loyalty through smart user guidance. We are clearly positioning ourselves as a solution provider with a focus on Europe and North America. But strategy is nothing without culture. That is why we focus on customer orientation, enthusiasm and personal responsibility as well as a corporate culture that motivates and supports our employees. Our strategy is brought to life by the people who implement it. And in order to be able to act quickly and empower our employees, we have defined and described 4 core areas to provide clear guidance for all employees into WashTec family. Clear statements for our employees and our organization, expectation management for our financial figures, lean processes and a clear customer focus. The framework is in place. Now it is up to the team to bring the strategy to life step by step. And as we can see today, we are already well on our way. A special milestone in 2025 was the completion and official launch of our new rollover machine, SmartCare Connect as well as our first and most important digital products in May of this year. With SmartCare Connect, we have created a digital solution that not only complements our product range, but also sets new standards in the industry. The market launch was extremely successful. We received very positive feedback from the market in the first few months after the launch. Our customers particularly appreciate its initiative usability, its intuitive usability, integration into existing systems and the wide range of options for data analysis and performance optimization. The system achieves top washing results with short washing times, especially when used in combination with our sustainable chemicals. The positioning of SmartCare Connect is clear. It is the digital heart of our new generation of washing systems and stands for innovation, efficiency and sustainability. With SmartCare Connect, we offer a solution that creates real added value for both large fleet operators and individual locations throughout the entire life cycle of the system. At the same time, our SoftCare SE remains a central component of our portfolio. It stands for proven quality and reliability. While SmartCare Connect focuses primarily on digitalization, smart networking and washing speed with washing time, SoftCare SE impresses with its robust and proven technology. Both product lines complement each other perfectly and enable us to offer the right solution for every customer. The first few months after the launch of SmartCare Connect confirm that we are on the right track. Demand is high, customer feedback is extremely positive and the market response shows that our strategy is spot on. We will continue to pursue this path consistently. Our efficiency programs are a key component in achieving our midterm target EBIT margin of 12% to 14%. Just to repeat our midterm targets, we are aiming for free cash flow of EUR 40 million to EUR 50 million, average revenue growth of 5% per year and a ROCE of over 28%. As just explained, the key levers with regards to our EBIT margin target are our efficiency program. These are the global scope configurator, cost reductions through modularization, quality improvement, optimization of the product footprint and reduction of installation costs. We will discuss these programs in more detail during our Capital Markets webcast on November 20. Our message is clear. We have had a very strong third quarter and are fully on track to achieve our targets 2025. For 2026, it will be crucial to focus on our further efficiency programs in order to realize this proportional EBIT margin growth by 2027. As part of our strategic goals, we are focusing on sustainable reductions in production costs, particularly for our SoftCare SE and SmartCare products. We see great potential here through complexity reduction, modularization and standardization as well as the harmonization of central components. We estimate a reduction in variant diversity of over 20% at component and module level, which will also have an impact on our supplier base and its consolidation. However, the effects here will be felt downstream. The goal is clear and is being pursued with enthusiasm, significant savings and further simplification of our product platforms by 2027. A key highlight of the current financial year is the successful rollout of our new digital products. Following an intensive preparation phase, we are already in the middle of the rollout phase with pilot projects. We have been able to launch our EasyCarWash PRO and CarWash Assist solutions on the market and gradually expand their introduction. EasyCarWash PRO and 4U and CarWash Assist are already in use in over 50 pilot facilities in more than 5 countries. Further pilot facilities are planned in over 7 countries and over 500 new facilities are planned for 2026. The feedback from our key accounts and from area sales is extremely promising. The rollout of our digital products is an important component of our growth strategy and sends a clear signal to the market. WashTec is shaping the future of vehicle washing digitally, networked and customer-oriented. Another important step we decided on is WashTec's new share buyback program. The Executive Board and Supervisory Board gave the green light on the 23rd of October. The program will start tomorrow on the 6th of November and will run until 4th of May 2026. A total of up to 100,000 shares or a maximum value of EUR 5 million can be repurchased. Why do we think this is a good program? First, a share buyback is a clear sign of our confidence in our own financial strength and the future development of our company. We have a solid balance sheet, a strong liquidity position. With the buyback, we are sending a signal to the capital market that we believe in the sustainable success of WashTec. Second, our buyback program increases the value of each remaining share, reducing the number of outstanding shares increases earnings per share. I will now hand over to our CFO, who will present the detailed financial figures and the performance of the individual segments. Thank you for your attention and enjoy the second part. Andreas, the stage is yours. Andreas Pabst: Thank you, Michael. Also from my side, a very warm welcome. I really appreciate that you are all in our call today. Let's go directly to our results. I am pleased to present our results for the first 9 months of 2025 as the numbers speak for themselves, not only compared to prior year, but also in a 5 years perspective. We did very well, strong top line growth and outpacing growth of profitability. We achieved revenues of EUR 358 million, up 7.2% year-on-year, confirming the strong market demand especially in Europe. EBIT grew disproportionately by 17.4% to EUR 32 million, significantly outpacing revenue growth. This is the second highest EBIT in the last 5 years. Only 2021, the year after COVID showed a higher number here, which had a significant catch-up effect. Our EBIT margin improved to 9.0% compared to 8.2% last year. This reflects the success of our cost discipline and operational excellence initiatives, combined with a tailwind from higher revenues. Also, free cash flow rose by 11.2% versus the prior year to now EUR 28 million. This is mainly driven by optimized working capital management and higher net income. The free cash flow ratio of 7.8% is highest in the last 5 years. And if you now look at Q3 stand-alone, the figures are even more impressive. EBIT increased by 35.8% compared to prior year, and it even outpaced the double-digit revenue growth of 10.3%. Also on the long run, WashTec had never seen a higher increase in those numbers year-on-year. Overall, we achieved revenues of EUR 126 million in the third quarter with an EBIT margin of 11.8% or in absolute terms, EUR 50 million. So overall, in Q3, we are clearly on track according to our ambitions. Top line growth accompanied by an overproportional growth of profitability. As you see from this slide, we have a pretty strong top line growth in all business lines. It's a broad-based growth and a solid foundation of recurring revenue, meaning the sum of service and consumables, which now accounts for 47.5% of total revenue. Revenue from equipment grew especially in Q3 with 13.7% year-on-year. For the first 9 months of 2025, this results in an increase of 6%, reaching now EUR 184 million. Growth momentum in Europe and other segments successfully offset the subdued performance in North America, especially Germany and France continued their very strong performance also in Q3. Service revenue grew by 7.5%, totaling EUR 116 million. This improvement reflects our focus on process optimization, digital connectivity and expanded capacity. We hired additional service technicians and field service solution software. By September, we had approximately 13,000 machines connected, an increase of around 14% compared to year-end 2024, a clear indicator of our progress in building a digitally enabled service ecosystem. This will help us in future to grow our profitability even further. Consumables delivered the strongest growth, up 11% to EUR 53.7 million. Looking at the revenue share, equipment remains our strong or largest contributor at 51.2%, but recurring revenue, meaning services, which accounts for 32.5% and consumables, which accounts for 15% are catching up. Therefore, the recurring revenues are now up to 47.5%, last year's 46.9%. The revenue mix develops further to our goal of 50% recurring and therefore, higher predictable revenues. Let's now turn the perspective and take our segments into the focus. Our results clearly demonstrate resilient growth in Europe and other regions, while North America faced headwinds not only but also from currency effects. Revenue, Europe and Other segment increased by 10.3% year-on-year, reaching EUR 309 million. EBIT rose even more sharply, up to EUR 23.6 million to EUR 33 million, driven by strong revenue performance across all business lines. The EBIT margin improved to 10.5% compared to 9.8% last year. These results reflect execution and the benefits of our high capacity load in our production plants. Besides this, we work full steam on our efficiency programs and have already achieved important milestones this year, further to come. Nonetheless, we will see the full contribution of these efforts as planned next year or part-wise even in 2027. Despite that, we had some additional expenses related to corporate strategy and ongoing IT projects. Contrary, revenues declined in North America by 9% in the first 9 months. FX had some impact. On a U.S. dollar basis, revenue is down by 6.1%. However, operational performance stabilized in the third quarter, especially equipment revenues came back. Overall, North America delivered an EBIT of EUR 1.4 million in Q3, up from EUR 1.0 million in the prior year. With that much better Q3 result, the segment stands now after 9 months at breakeven. This gives me some optimism for the coming quarters. To visualize different influences on our EBIT, this bridge might be helpful. Due to higher revenues, we could book EUR 7.3 million additional gross profit and another EUR 3.1 million due to higher gross profit margin. The gross profit margin is now at 31.6% compared to 30.4% last year. This positive performance was mainly due to the increased business volume in Europe, as already mentioned, given in the current setup of our production plants and working close to the limit, and we are facing in some regions, installation capacity constraints. The product and the regional mix also supported this development. Contrary, we had higher selling and marketing costs resulting from higher outbound freight rates in connection with the revenue growth and of the expansion of our sales organization as well as from the launch of the new products. Higher administrative expenses are mainly linked to IT expenses for ongoing projects such as already named SAP investments and new software for the service optimization. In total, earnings before interest and taxes are up by EUR 4.8 million to now EUR 32.4 million. This results in an EBIT margin of 9.0%. Now some other important KPIs. In line with EBIT development, net income increased compared to last year, similar earnings per share. We achieved EUR 1.57 compared to last year's EUR 1.30. Our net financial debt of EUR 60 million is EUR 5 million above prior year's level. with credit lines of around EUR 100 million, unused by more than 50%, our financial position is quite strong. In respect of net operating working capital, we see more or less similar numbers by around EUR 90 million compared to end of September last year. Compared to the end of last year, which was at EUR 94 million, we are down by EUR 4 million. We are still cautious about investments, meaning after 9 months, we spent EUR 5.5 million. The main portion of those investments is linked to our North American production plant, where we bought some machines to strengthen our local production footprint and to our digital products and solutions. Our equity ratio is at 25.5% compared to 26.7% end of Q3 2024. But our balance sheet is still very solid and very healthy. In terms of employees, 85 more people work for WashTec compared to 1 year ago. The majority is hired for service. I already spoke about this one. Let us now debate a little bit about our order backlog. As usual, this slide doesn't give absolute numbers, but index numbers based on a 5 years view. In the first 9 months of 2025, WashTec Group did very well in terms of order intake, especially in Germany and France, we had a very strong order intake, whereas North America remained at prior year's level in euro and a little bit above in U.S. dollar. Especially in Q3, we saw here some progress. Consequently, this overall higher order intake results in higher order backlog, which is 20% over year-end 2024 and a comparable level compared to end of Q3 2024. Knowing about this good order backlog, we have some clarity on increasing equipment revenues in the next 6 months in all segments. This provides us with a solid base for the months ahead. Coming now to our guidance. WashTec confirms its guidance for the group for 2025 based on our current order backlog as well as progress of our initiatives. Especially the EBIT development in Q3 supports our guidance with regards to a disproportional increase of EBIT compared to revenues. We now expect revenues and earnings growth in Europe and other segments to be comparatively stronger and in North America, relatively weaker in local currency. But overall, we expect for the group, a full year growth of revenues by mid-single-digit percentage and a disproportionate EBIT increase in excess of revenue growth. Full year's free cash flow is expected to be in the range of EUR 35 million to EUR 45 million, and we also see improvement in our ROCE number. Summing up, we confirm our group guidance for 2025, and we look optimistic into the future. This forecast is based on the assumption that the current global trade conflict will not have any significant negative impact on investment behavior in the car wash market. Next slide, please. So before we start with the Q&A session, a quick reminder about our upcoming capital markets communications. Feedback we got from you after our first capital market webcast on July 10, we feel ourself-confirmed that this type of communication really adds some value. Therefore, we have recently announced to do our second capital market webcast on November 20. Currently, we are working on the details. But I can tell you that we want to explain in much more details what is the plan in future for our consumable business as well as some deep dive into our efficiency programs. These are essential part in our plan to achieve our midterm profitability targets. So we hope that you dial in. Straight after, we will be in November at the German Equity Forum where we can meet in present. We are looking forward to meet you there. So that's it from my side. Thank you for listening. Kevin Lorenz: [Operator Instructions] And we already have the first question from Stefan Augustin from Warburg Research. Stefan Augustin: My first question is actually on the very strong European margin. If I look at the recurring revenues, it's likely not a positive mix effect. So is this then driven by the efficiency programs? Or is that simply driven by the volume and load? That would be my first question. And from that one, I have likely a follow-up. Andreas Pabst: Let me take this one, Mr. Augustin. Thank you for asking that question. So yes, you are right. In Europe, we are doing very, very well. And our gross profit margin is influenced by similar different topics. For sure, there is a higher revenue, which helps us there. The production load is better. And there is also a small contribution by better material prices, but also we see the first effects on the efficiency programs, not at a stage where we wanted to have them. That is what we have announced a little bit, but we see that they are also contributing. Stefan Augustin: Okay. From that one, looking maybe into Q4 and taking your full year guidance, which implies that we have maybe a slightly lower or roughly the same volume in Q4 as the last year. If you have savings on the material side, gains, would it be fair to assume that on the European business, you should at least be able to get the same absolute amount of EBIT with the same volume? Andreas Pabst: So indeed, yes, we are planning that we reach or achieve our guidance in total. We will be stronger in Europe compared to last year and weaker in North America. So if I look at the Q4 for Europe stand-alone, as you asked, I'm positive that we are doing here pretty well again. Stefan Augustin: Okay. And then maybe a bit on the order intake. If I read your slide correctly, my assumption would be that we have a book-to-bill in Q3 that is very close to 1. And what it does not show me is the actual growth in the order intake Q3 year-over-year. Can you comment on that one? Andreas Pabst: Yes, a very important topic, which is a regular bigger order, which we receive once in a year is related to North America, where we -- in the comparable numbers last year, we had from bigger customer, a great order in the figures. We did not have received this order this year, but we expect to receive it in the fourth quarter. So that is one part of the explanation. Stefan Augustin: All right. And the last one, could you help me a little bit with how much the IT and other implementation costs have burdened Q3? Andreas Pabst: It will come in future when its Q3 already. So it's -- the question is how much was it in Q3? So we are really -- we are facing the implementation of, for example, SAP S/4HANA is pretty expensive, and we started the program in beginning of this year and every quarter, it's a little bit more. So stand-alone in Q3, if you ask me right now, I would say it had cost us between EUR 0.5 million and EUR 1 million together with the other programs. Stefan Augustin: Okay. And that one, you indicated it's going to go up a little bit going further. Andreas Pabst: Correct. Yes. So according to the plan, which we see is that we will need next year for fully implement S/4HANA and some other IT programs as well. It's not only S/4HANA, but the plan is that we will have done this with the first 2 major steps until Q4 2026. Michael Drolshagen: We do a lot of SAP S/4HANA has advantages that is driven by cloud costs, and we started in parallel to reduce the cost for cloud data storage that we -- with all our manpower and efforts to -- that you have only the data in the cloud in SAP S/4HANA that really need there and the others are still on-premise or somewhere else to have our costs under control in the IT sector. Stefan Augustin: I don't want to spoil the upcoming Capital Markets Day, but I assume that, let's say, you skipped how much that could be in 2026. Would you be happy to share at this point or... Andreas Pabst: Probably -- we will not give a detailed number for our introduction cost of S/4HANA. Probably that is too much insight, but we will give an indication about it, how we see it. Stefan Augustin: Okay. And then finally, do you think -- would you describe yourself at this point also very confident to achieve your full year guidance with respect to sales? Andreas Pabst: Yes. Simple answer, yes. We feel confident. Kevin Lorenz: We have another question from Nicole Winkler from Berenberg. Nicole Winkler: Maybe starting with a housekeeping question. In your report, you mentioned that all 3 business lines contributed to revenue growth in Europe in Q3. How about North America? Was it mainly driven by service and consumables again in Q3? Or do you already see the uptick of equipment sales? Andreas Pabst: North America, that goes along with the story which we already said in Q2 about a major customer who places orders again. So what we now see in North America is that especially equipment in Q3 contributed here. But also there was not too bad in terms of service and consumables. But comparable to last year, the equipment topic was in favor for us. Nicole Winkler: Perfect. Maybe this also goes along with this one big customer, but you also mentioned that contract negotiations in North America are finally finalized and order intake increased significantly. Now looking at the order backlog, you cannot see this yet. So basically, can you give us some more color here when we should see also these kind of orders coming in from big North American client in your order backlog? Andreas Pabst: So I assume the client you are mentioning is we are confident with it. Yes, the orders are coming in. The order backlog is fine. The client I mentioned in my speech before is a different one, where we expect to get the orders in Q4 this year. Nicole Winkler: Okay. Understood. Maybe also regarding the service revenue, can you give us some more detail in which amount the optimization of processes, the digitally connected equipment and increased capacity in this area contributed to revenue growth. What I would like to understand is because you mentioned it that now you have like, I guess, 13,000 connected units by now. Do they already contribute to service and consumable business? Andreas Pabst: Yes. The more machines are connected the better we can work with the data, the better we can push the efficiency of our service business line. What is important for this year also, and maybe I just mentioned it somewhere in between the lines, we have hired throughout the year a lot of new service technicians. And you understand immediately that if you hire a new person, you need to train this person, you need to educate this person. So at the beginning, this person contributes to the top line, but not necessarily in the same amount to the gross margin. And what we see now is in Q3 that we are catching up here again, and we are in the same EBIT margin in service like we have been last year. And I think that is really something very positive, understanding how much new service technicians we have hired. Michael Drolshagen: And it takes us 3 to 9 months currently to train them. And this is also where we work on to reduce our complexity that in future that they contribute faster to revenue and EBIT margin than it's today. Nicole Winkler: Okay. Understood. And one last question regarding your shift of workforce from Germany to Czech Republic. Have you had any restructuring costs? And if yes, which amount in Q3? Michael Drolshagen: We have cost because we have to train the people and we have some processes and people in parallel. How much it is, I can calculate it in my brain fast if you have the number. Andreas Pabst: So the topic is that in the moment when we shift, we need additional people. So we need the people here and we need the people there in Czech because they have to train. But if your question is referring to severance payments or stuff like this, so we are really happy that we could do this and can do this without any major severance payments. So we are just using fluctuation. We are reducing temporary workers. And so as of today, and we are not fully through, but as of today, we do not have any significant severance payments. Michael Drolshagen: You can calculate around 10 to 15 people in parallel for 2 to 3 months. And this is over 1 year time period. This is our extra cost here. We have calculated this in the savings and we hope that after the starting phase that the savings we gain that we can cover the extra cost in the following months. Kevin Lorenz: And we have another question from Alexander Galitsa from Hauck Aufhäuser. Aliaksandr Halitsa: I have a couple of topics, different ones. Maybe first one, just a clarification. You mentioned in your remarks that for 2026, you will be focusing on pushing forward the initiatives that are underway to prepare the company for disproportionate growth in 2027. I'm not sure if I heard it, maybe I misheard, but could you just clarify that should we read it in a sense that one should not necessarily expect disproportionate EBIT growth in 2026 or it was not that -- it was not meant that way? Andreas Pabst: What I meant was that we will have still some costs with doing all those efficiency programs and that we will see the efficiency gains from those programs on a full year's perspective in 2027. And we really need to execute those programs and that they really kick in because in the Capital Markets Day and also Michael today repeated it again that in 2027, we want to achieve an EBIT ratio between 12% and 14%. So if you go from 2025 to 2027, I do not think that it will be a linear growth. So there will be a little bit of burden in 2026, but we will also grow in 2026, that's what I believe. Aliaksandr Halitsa: Perfect. And maybe just a quick follow-up since you mentioned the range, 12% to 14% is obviously a big bandwidth. The upper end of this bandwidth, what would you say you need to achieve to get there? Michael Drolshagen: We have calculated this already. Otherwise, we couldn't promise that we try to achieve it. So we need revenue growth in our segments. We think we can do this not only in equipment also in chemicals and service. And on the other side, we have really to focus on our bottom line. There is a lot of opportunity there. And if we do this in the right way, so reducing complexity by 20%, 30%, implementing our installation process in the next levels, which we are focusing on currently. And I think we are close to implement the next phase. We have some standard programs, how we want to achieve efficiency in the indirect areas. So if the growing is coming as we expect it, and it looks like in the order intake and we do our homework in the bottom line with our program, then I'm really confident that we can achieve that. Aliaksandr Halitsa: Perfect. Then maybe briefly on consumables growth. I just wonder if you could somehow elucidate to what extent consumable growth is already driven by the bundling initiatives? And maybe what's the sort of natural progression in terms of time frame when those bundles are going to play a role in that regard? Michael Drolshagen: We implemented the scope configurator just a few months ago. So there is not a lot of revenue and EBIT margin due to bundling in that area. So we expect more in that area 2026, but we have to roll out the system. We have to train the people and so on that the full scope we think we will get in 2027. So it's a step-by-step market by market. We started now in Germany with focus on Germany and now we go from the biggest markets to the smallest markets to get efficiency as early as possible, but this takes time. And we think full gain is in 2027. Aliaksandr Halitsa: And you're generally confident that this would -- is getting traction within customers and there's not going to be a major pushback on the bundle offer? Michael Drolshagen: We are deeply convinced that this will ease up the process and also for our customers that they clearly see what they order for what kind of money and what they get finally. And we can use and chemicals are driven by headcount as more headcount you put in the system as more you can achieve. And with that, we can also use our equipment salespeople in a better way than we have done it before. Aliaksandr Halitsa: Understood. And then just 2 last topics I have. One is on equipment growth. I think you already mentioned that backlog gives you certain visibility. Could you confirm or is that reasonable to expect that equipment should be also growing year-on-year in Q4? Because I think you're kind of competing also against a strong base. But based on your backlog, is that a reasonable assumption that equipment should grow? Andreas Pabst: Being a little bit cautious. Last year Q4 2024 was a pretty strong equipment quarter. We expect that this year will be on the same level like last year. But in equipment, you really have the topic that you are -- you do not have it always in your own hand if the revenue slips to the beginning of January 2026 or if you can make it in 2025. So our expectation is that we can repeat what we had last year. Aliaksandr Halitsa: Okay. Perfect. And then very last one. I don't know how material this topic is, but there has been a press release from you some time ago on a partnership with Prag, I believe, is the owner of 100-plus petrol stations. And I think they've commented that they are delighted to have 30 of those stations digitalized. Just wonder what does WashTec get incrementally from a partnership like that? Will you start selling more services and consumables into this specific customer? Or how should one read that news flow? Andreas Pabst: I think the most important thing here is that we are confident that our digital initiatives, they are accepted by the customer. And Prag is for sure, one of midsized customer where we tested if it works. And we got really positive feedback from the cooperation with Prag, and I think it's moving here in the right direction. I do not want to comment if we make now much more revenue or EBIT with one single customer. I think that is not here the place to speak about a single customer. Michael Drolshagen: What we see -- probably in that direction, what we see in the data with our pilot facilities, not only with that customer is that we increase on our operator side, the number of washes per site. So this we see already with our pilots. And this is good news for our operators. And this on mid- and long-term run is a good news for our equipment sales, which is in a year's perspective, but it's also good for our service and equipment as more washes we have as more we have traffic here in that business. So this is what we see, and we have to support here that we have good numbers that we have a good app and good equipment installed and that we have transparent data available and can provide this to our operators and they set in place, the next step will come automatically. Kevin Lorenz: We have no further questions. Michael Drolshagen: Okay. Then ladies and gentlemen, on behalf of the Management Board, we would like to thank you for your interest in our company and wish you a pleasant day. Thanks. Andreas Pabst: Thank you very much for joining. Bye-bye.
Operator: Hello, everyone, and welcome to today's Acushnet Company Third Quarter '25 Earnings Call. My name is Seth, and I'll be the operator for your call today. [Operator Instructions] I will now hand the floor to Sondra Lennon, Vice President, FP&A and Investor Relations. Please go ahead. Sondra Lennon: Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp.'s Third Quarter 2025 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer, and Sean Sullivan, our Chief Financial Officer. Before I turn the call over to David, I would like to remind everyone that we will make forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non-GAAP financial measures, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures can be found in the schedules in today's press release, the slides that accompany this presentation and in our filings with the U.S. Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year net sales increases and decreases are on a constant currency basis, unless otherwise stated, as we feel this measurement best provides context as to the performance and trends of our business. And when referring to year-to-date results or comparisons, we are referring to the 9-month period ended September 30, 2025, and the comparable 9-month period in 2024. With that, I'll turn the call over to David. David Maher: Good morning, everyone, and thanks to Sondra, who last month started her 28th year with our company. As always, we appreciate your interest in Acushnet Holdings. As the golf world exits peak season in many regions and begins prime time across the Sunbelt, the sport and business of golf continue to be vibrant with an increased number of golfers playing an increased number of rounds globally. After a weather-induced slow start to the year in the U.S., rounds of play accelerated in the third quarter, which is the largest participation period of the year, and we now expect worldwide rounds in 2025 to match or exceed what was a record 2024. Acushnet's trade partners are, by and large, healthy and investing to enhance their facilities and ultimately, their value propositions to best meet the evolving preferences of tomorrow's golfers. The global golf market is structurally sound with momentum in the U.S. and EMEA offsetting softness, mainly from footwear and apparel across Japan and Korea. And within Acushnet, our team is relentlessly focused on exceeding dedicated golfer expectations, developing great products, earning the trust and endorsement of the pyramid of influence and our partners and executing a wide range of fitting and golfer connection initiatives. Tying this together is the company's unwavering commitment to product quality, best exemplified by every Pro V1 golf ball, which passes more than 100 quality checks throughout the production process. As a result of this commitment, our return rate is 1 golf ball out of every 16 million Pro V1s produced. This operating model, Acushnet's blueprint for success is continually refined and improved upon by our team as we strive to provide great products and services to golfers, execute our capital allocation strategy and create shareholder value for our investors. With this as background, I now point to Slide 4 and our third quarter and year-to-date results. First, for the quarter, Acushnet delivered worldwide net sales of $658 million, a 5% constant currency increase over last year, with gains across all segments. Adjusted EBITDA of $119 million grew by 10%. Year-to-date, sales of $2.08 billion were up 4% and adjusted EBITDA of $401 million was up 2% compared to last year. Getting to our segment results, you see the continued global momentum within Titleist Golf Equipment, which has grown 5% in both the quarter and year-to-date. Key drivers have been the year-to-date growth of our Pro V1 franchise in all regions and the very successful launch of new Titleist T-Series irons and limited edition Vokey SM10 wedges in Q3. We have spoken in recent years about the investments we have made to strengthen our golf equipment product development and enhance manufacturing capabilities. Our growth and momentum today are byproducts of these investments. Acushnet's Golf Gear segment also had a strong quarter, posting a 13% gain and is up 8% year-to-date as our team brings a steady flow of compelling products to market and leverages our expanding custom capabilities and strengthening supply chain. Within gear, the company's travel brands have increased 20% year-to-date with especially strong growth from our Links & Kings and Club Glove brands. And our FootJoy business continues to build momentum and delivered another positive quarter with revenues up 3%. FootJoy is benefiting from the success of our Premiere and HyperFlex footwear models, fewer footwear closeouts and steady glove growth. FJ's apparel business adds to the brand story, showing resilience with quarterly and year-to-date gains. As we have discussed throughout the year, these trends are positively affecting FJ's market momentum and financial performance in 2025. And finally, net sales of products not allocated to a reportable segment were up nicely in the quarter with continued momentum and double-digit growth from shoes led by outsized gains across their golf business. Now looking at our business by region on Slide 5, you see the U.S. market continues to be strong, up 6% with growth across all segments, led by Titleist Golf Equipment. EMEA posted a 14% gain in the quarter and is now up 8% year-to-date. Rounds of play are up high single digits as the region benefits from favorable weather comps versus last year. Korea was up 3% in the quarter with strength in Titleist Golf Equipment led by golf balls, while Japan was off 13% in the quarter and 7% year-to-date. And as you see, our revenues in Rest of World were up 5% in the quarter and 3% year-to-date. In summary, we are pleased with Acushnet's performance in the quarter and the overall health of our consumer. The company's product lines are in great shape. Inventory positions, both owned and at retail are in line for this time of the year, and we are confident in our team's ability to execute against our strategies. Thanks for your attention this morning. I will now pass the call over to Sean. Sean Sullivan: Thank you, David. Good morning, everyone. As highlighted, we had a great third quarter and solid year-to-date performance. Third quarter net sales were up 5%, while adjusted EBITDA was $119 million, up $11 million from last year's third quarter. For the first 9 months of 2025, net sales increased 4% and adjusted EBITDA increased 2% as compared to the same period last year. Moving to our income statement highlights on Slide 8. Gross profit in the third quarter of $319 million was up $15 million compared to 2024, driven by increases across all 3 reportable segments, primarily related to higher average selling prices, higher sales volumes and a favorable mix shift in FootJoy. We also had approximately $10 million in incremental tariff costs in the quarter and year-to-date have recognized $15 million. Third quarter gross margin of 48.5% was down 50 basis points versus prior year, primarily related to the headwind from higher tariff costs. Year-to-date gross margin of 48.6% was consistent with last year. SG&A expense of $205 million in the quarter, increased $5 million from the third quarter of 2024 as we continue to invest in A&P to support new product launches and future growth initiatives, including our fitting network and IT systems. SG&A also included $2 million of restructuring costs related to the voluntary retirement program the company initiated earlier this year. As a reminder, we expect a further charge in Q4 related to this program of approximately $5 million. Interest expense of $14.5 million in the quarter was up $1 million due to an increase in borrowings. Year-to-date, our effective tax rate is 23.6%, 200 basis points more than last year's rate through 9 months. Our effective tax rate in Q3 was 37.3%, up from 19.3% last year, primarily driven by a shift in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income resulting from the enactment of the One Big Beautiful Bill Act. Moving to our balance sheet and cash flow highlights on Slide 9. Our strong balance sheet and consistent cash flow generation continue to support the disciplined execution of our capital allocation strategy. We remain focused on investing in the business to drive long-term growth while also returning capital to shareholders through dividends and share repurchases. Our net leverage ratio at the end of Q3 using average trailing net debt was 2x. Inventories were up 3% when compared to last year's third quarter, reflecting some advancement of inventory ahead of tariff deadlines and the impact of our iron launch. Overall, we remain comfortable with our current inventory position and quality. Year-to-date cash flow from operations decreased from 2024, primarily due to increased investments in strategic initiatives, including our IT systems and increased working capital requirements. Capital expenditures were $51 million in the first 9 months of 2025, and we now expect full year CapEx spend to be approximately $75 million. Through September, we returned approximately $230 million to shareholders with $188 million in share repurchases and $42 million in cash dividends. Today, our Board of Directors declared a quarterly cash dividend of $0.235 per share payable on December 19 to shareholders of record on December 5, 2025. Looking ahead to the remainder of the year, I would like to provide an update on our full year revenue and adjusted EBITDA outlook shown on Slide 10. We expect full year 2025 revenue to be in the range of $2.52 billion and $2.54 billion on a reported basis. As discussed on our second quarter call, we are still forecasting low single-digit growth in the second half, driven by contributions across all reportable segments. We now anticipate the full year FX impact to be negligible compared to last year, resulting in aligned reported and constant currency growth ranges. Both are projected to be between 2.6% and 3.4% for the full year, representing a midpoint growth of 3%. This midpoint implies fourth quarter revenue of approximately $448 million, representing high single-digit growth over Q4 2023, a period consistent with the cadence of our product launch cycle. Moving to adjusted EBITDA. We are projecting full year 2025 to be in the range of $405 million to $415 million. Incremental full year gross tariff costs are expected to be $30 million, about $5 million lower than our previous estimate, driven by timing shifts in tariff-related variables. This reflects a $15 million gross tariff headwind in the fourth quarter. Through the strategic mitigation efforts we've discussed, we still anticipate offsetting a meaningful portion of the full year gross tariff headwind. Overall, we are very pleased with our year-to-date performance and full year outlook. The team remains focused on finishing the year strong and continuing to execute on our long-term strategic priorities. With that, I'll now turn the call over to Sondra for Q&A. Sondra Lennon: Thanks, Sean. Operator, could we please open the lines for questions? Operator: [Operator Instructions] Our first question comes from Joe Altobello at Raymond James. Joseph Altobello: I guess my first question is on U.S. sales. If I look at it year-to-date, you're up almost 5%. I was wondering if you could kind of parse that out between volume and price and maybe what that looks like relative to the category. Sean Sullivan: Yes, Joe, this is Sean. I'll take it. And obviously, David can supplement as necessary. When we look at U.S. sales, again, very pleased. I think it's also important to keep in mind the product cadence, right, of each of our categories in each of the segments. So the ball business has done incredibly well in the U.S. We've had a good year in clubs as well in terms of both volume and price. We didn't take price in balls in 2025. So you can see that a lot of the ball growth is coming from volume gains in that category. On the club side, we're comping against last year's metals launch, which is generally higher ASP, so a more difficult comp. But given the momentum we have with the irons launch and the other special edition categories of Vokey wedges, as David highlighted, we've seen good gains there as well. So as I look at clubs versus 2 years ago, we're seeing volume gains independent of price, which I think is the right comp for that category. On the FootJoy side in the U.S., obviously, we are focused on profitability, winnowing the portfolio and really going more premium, particularly in the footwear category. And gear in the U.S. has seen really great performance across all categories, gloves, bags and headwear. Obviously, the golf -- even FootJoy has done great with gloves. Obviously, rounds of play with that consumable product is a good comp, too. So all in all, sorry I didn't answer your question directly, I think we're pleased with both price and volume. I think the product cadence matters a lot. We did take some selective pricing in both FootJoy and gear midpoint of the year. So that's having some effect on those segments. So... David Maher: Yes. Joe, I just -- I'd echo what Sean said, really 2 parts, equipment, really not a pricing story this year. And again, you really need to look at our 2-year cadence. But we're very pleased with the growth and momentum within equipment. And then as Sean said, the wearables gear market, a little more tariff impact there, and we took some selective price moves across footwear and gear, not across the line, but in key models earlier in the year. So I think the best way to think about it is to look at equipment one way and the rest of the portfolio a little bit differently. Joseph Altobello: Got it. Very helpful. And maybe just to kind of pivot to tariffs. I think you mentioned earlier, $30 million for this year, but you expect to mitigate a good portion of that. How does that look for '26 in terms of what you're thinking about maybe an incremental impact for next year? Sean Sullivan: Yes, Joe. So again, to highlight certainly, this year at $30 million was slightly lower than what we had anticipated on our last call. So I just want to make sure everybody has that and what the impact is in Q4. As we fast forward to 2026, our number today, if nothing changes, is probably just north of $70 million, 7-0. We've done good work in terms of our strategic initiatives around vendor sharing, around certain changes within the supply chain. Again, I'm not going to give you a percentage today given where we sit in the year. But the expectation as we go on our '26 planning cycle, we're going to mitigate, again, a meaningful portion of that $70-plus million in '26. Joseph Altobello: I'm sorry, Sean, is the $70 million total? Or is that incremental? Sean Sullivan: That is the full impact for 2026. It's obviously $40-some-odd million incremental to 2025. Operator: Our next question comes from Matthew Boss at JPMorgan. Amanda Douglas: It's Amanda Douglas on for Matt. So David, just to start, could you speak to the health of the overall golf participation that you're seeing across regions and elaborate on reception you've seen in the marketplace to your T-Series irons and the Pro V1 franchise. David Maher: Yes. Amanda, so maybe high level, right, we like where industry fundamentals are. They're in very good shape. Rounds of play, obviously, very strong. I made the point earlier, our consumer is engaged and healthy. But to your question, if I dig into rounds of play around the world, up slightly in the U.S., terrific after a strong third quarter. U.K., EMEA, up high single digits, great. Even Japan and Korea, where we've called out some softness in wearables and in footwear. We've got Japan through 9 months flat versus a year ago, up double digits versus 4, 5 years ago. And we've got Korea down 1% through the first 9 months, but up 20-some-odd percent versus 4, 5 years ago. So structurally, we like where the industry sits. Participation is the engine and driver to a lot of what we do, which is why we pay very close attention to it. So that's really part 1. But I will lean into just, hey, fundamentals, rounds of play, consumer all in good shape, certainly for this time of year. To your questions about Pro V1, this was our 25th anniversary of the Pro V1 golf ball. We leaned into that a bit early in the season. And as we've said, very pleased with our golf ball performance this year, both in terms of sell-in and sell-through and growth in all regions. And behind that is the great work by our production team, right? We produce some 70% of our golf balls in Massachusetts, the rest in our plant in Thailand. And our team has done a great job keeping pace with strong demand. So really pleased with where Pro V1 is through this time of year and as we start gearing up for next year. Similar to that, across the pyramid of influence, our accounts, our wins are really strong, and that just -- that for us, provides validation and endorsement of our performance and quality story. So particularly strong year for Pro V1. And then your question about T-Series iron launches, again, we're really pleased. We had high expectations. We made some meaningful changes to the product, which I think the golf audience, our target consumer has responded very well to. And I will make the point that any time we talk about golf clubs, particularly irons, which are so custom fitting centric, for us, it's great work by the product development team on the products. And part 2 of that is great work by our fitting teams around the world to tell the story to golfers and make sure golfers are getting fit with the right products. And the final point I'd make is we're seeing a whole lot of blended sets, which we like, which shows the strength and capabilities of our fitting network and also our supply chain. But to your questions, Pro V1, T-Series, really strong out of the gates on both fronts, and we like our position. Amanda Douglas: That's helpful. And Sean, just as a follow-up, as we look ahead to 2026 in a flat or modest growth rounds played backdrop for the industry, how best to think about gross margin drivers or multiyear SG&A investments just as we're shaping the initial P&L? Sean Sullivan: Yes. When we look at gross margin, again, we're in the midst of obviously mitigating the tariff impacts that I just highlighted. So I think that we continue to see a growth story that outpaces the market even in a flat rounds of play environment. We believe that where our club business is positioned, particularly helps us drive better than market growth. As I look at the puts and takes on gross margin, again, I think tariff will be the headwind. We'll mitigate a meaningful portion of that as we move forward. So I'm hopeful that we don't have a material impact to our gross margin portfolio. And as we've talked about on past calls, we've made a lot of investments in '24 and '25 in OpEx. We've obviously invested in our fitting networks, as David talked about, both on balls and clubs. And the expectation is we're going to see operating leverage. And hopefully, we'll see the opportunity to continue to drive better than revenue growth, EBITDA growth for the company. But still early days as we go through our '26 planning cycle, but we feel very good about where we are positioned going into '26. Operator: Our next question is from Simeon Gutman at Morgan Stanley. Pedro Gil Garcia Alejo: This is Pedro on for Simeon. Congratulations on a strong quarter. As my first question, could you give us a bit of color on the sell-through trends at retail and the channel inventory levels, both for the Pro V1 ball and for the club launches? David Maher: Yes. I'll link -- and this is as much a global commentary. I'll link our couple of comments made. One, we like our growth in our golf ball growth year-to-date. We like our in-market inventory positions and what obviously connects those is sell-through. So it's been a good sell-through year for Titleist golf balls and especially Pro V1. Again, growth in all regions is no small feat, but our team managed to achieve that. And I would say, aided by some interesting new follow-ons, whether it's Pro V1x Left Dash, some new enhanced alignment products. So we're really pleased with the product itself, but the franchise continues to get, I think, more compelling and value-added to our target audience. So yes, we don't -- as you may know, Pedro, we don't really zero in on market share by region for a lot of different reasons. But again, I would say, if you look at our top line growth and you look at inventory levels around the world, which are in great shape, that implies where we're in really good shape and implies a very favorable positive sell-through story for the year. Pedro Gil Garcia Alejo: Okay. Great. That's helpful. And as a follow-up, the full year guidance implies a bit of a deceleration in sales growth relative to where you've been running the past couple of quarters on a year-on-year basis. Is there something that you're seeing specifically kind of going into the holidays? Or is it just the tougher comparisons versus last year? Sean Sullivan: Yes. I don't -- Pedro, I don't think it's a tougher comparison. I think the implied midpoint of the guide is about, what, $448 million of revenue. It's certainly better than last year. But if you look back to Q4 of 2023, where I think we did about $413 million, that's a high almost double-digit growth rate over '23. So given the product cadence, given the 2-year product life cycle, I think we're very pleased with the Q4. And again, I'll reiterate what I said in my comments that we had a second half where we expected low single-digit revenue growth and growth across all segments. And I think this guide at the midpoint delivers that. So we feel very good about the Q4, and I don't think there's anything unusual about demand, about product or otherwise that would indicate otherwise. David Maher: Yes. I'll just affirm Sean's point as it relates to the 2-year product cadence really in equipment, right? The best way to see like-for-like comparison Q4 '25 in equipment, balls and clubs is to look back 2 years because that's when the product line was comparable. Again, gear footwear, less of a 2-year story. But yes, just to reiterate Sean's point, we feel really good about our business. We feel really good about the half, how we're organizing our stories and our product lines for next year. So we don't really think about it or see the fourth quarter as being a period of deceleration. We see it as a period of continued momentum generation, but it is noteworthy to call out within equipment of how we look at things over a 2-year product life cycle. Operator: Our next question is from Noah Zatzkin at KeyBanc Capital. Noah Zatzkin: I guess, first, if you could just kind of comment on how you're feeling about inventory in the channel, both in terms of your inventory and from an industry perspective? And then just any comments on potential changes or not in retail partner ordering habits? David Maher: Yes. So I would just first say, Noah, that inventories in the golf industry at this time of year should be relatively low as you move as -- the snow belt, if you will, in northern markets and mid-belt markets sort of move out of season. And they should be relatively low. They are. So we like what we see there. And in the Sunbelt, they should be high, and they're filling up the stores for the start of their season. So that's the expectation as we look at channel inventories around the world, and that's what we're seeing. So no unusual call-outs. Sure, there are pockets here and there, but nothing that bubbles up to caution or concern. We really look at our channel inventories on a months of inventory basis and all very much in line with where they should be. And then the next step will be our retail partners who are open for the holidays in the north and mid-belt will fill up their shops here in the fourth quarter. But it's as much commentary on the ebb and flow of inventories in golf throughout the year. So again, channel inventories at a seasonally low level and very much in line with what we expect. And to our own inventories, yes, really good shape. Sean mentioned it. We like what we have. We like the quality of it. We did some pull forward along the way to stay in front of ever-evolving tariffs, but we like where things sit from an overall channel inventory perspective. Noah Zatzkin: Great. Very helpful. And maybe just looking outside of the U.S., obviously, maybe some puts and takes when you're looking across regions. EMEA has been strong this year. Japan has been a bit softer as has Korea been. So just any thoughts on both your business and the sport outside of the U.S. looking ahead? David Maher: Yes. I think I've leaned into enough the U.S. business, right? Real strong rounds of play, consumer. I think our numbers bear that out. Especially strong in EMEA this year and U.K. I think that speaks to pretty good fundamentals. But clearly, they're getting a bump because of some very favorable weather against some less than favorable weather a year ago, and that attributes or contributes to some of the high growth rates we're seeing in rounds the play. And obviously, that's good for balls and gloves and consumables. So those 2 markets, particularly strong. Maybe a minute on Japan. So I made the comment earlier, Japan rounds are flat. They're certainly up versus 4 or 5 years ago. So structurally, Japan is in decent shape. I would say to our business, we feel pretty good about equipment, right? We like our equipment positioning. Ball growth this year, year-to-date is obviously strong. So again, part 1 of the story is equipment in Japan is healthy and trending in the right direction. A couple of behind-the-scenes stories in Japan would be, we're going through a pretty meaningful repositioning with our FootJoy business. We're exiting some price points, introducing some more premium products in the market. So we had expectations to be down in 2025, and we're meeting those expectations. And then I would add to it, our gear business in Japan has been down. I think that's a little bit timing and a little bit overall market softness. But again, Japan, equipment in pretty good shape and repositioning happening within FootJoy and gear. And then I'll move to Korea, really a similar story. Their equipment business -- our equipment business in good shape, balls and clubs in good shape. I've talked over the years about the ascension and growth of the premium apparel business in that market. It rode up high, and it's been through a bit of a correction this year. And we're seeing that have a negative effect on our business. But overall, structurally, in decent shape from an equipment standpoint, footwear and apparel softer. And I would just add the consumer not as healthy in Japan and Korea as we're seeing certainly in the U.S. But again, you add it up, we're still -- we're pleased with how the game is holding up. Again, rounds of play roughly flat in both markets. We're comfortable with. And again, as we look at the comp versus a handful of years ago, there's been a bump in the golf marketplace in those markets. But I think they're just dealing with some different macroeconomic forces that are shaping consumer spending, and we're certainly seeing that in our business. Operator: Our next question is from Doug Lane at Water Tower Research. Douglas Lane: I just wanted to press a little bit on Europe because you've just seen a noticeable acceleration in growth in Europe, including double-digit local currency growth in 2 of the last 4 quarters after really most of 2024 and 2023 being flattish, maybe down a little bit. So is there something more going on there than weather? Are we seeing a change in the competitive dynamic in Europe? David Maher: Yes. I think it's -- I don't want to give all the credit to weather, but certainly rounds of play and the golf industry has been very healthy. U.K. up low double digits in rounds of play. That just drives the golf economy. So I think the golf economy is outpacing other sectors. Yes, we like our positioning and our share positions across all our categories. So we're certainly growing in all categories. It's just -- it's a whole lot healthier environment this year than we've seen in the last couple of years. And again, just a healthy rounds of play environment, nice execution by our team. We got our product lines right in those markets. And the final piece would be just our continued build-out and activation of fitting across balls and clubs and now footwear. We're doing more fitting in EMEA than we ever have, and that's certainly having a favorable impact on -- again, on balls, on clubs and across footwear, which is the latest entrant into our fitting realm with FitLab. So yes, really happy with the team, happy with the market. Weather deserves some of the credit, but not all the credit. Douglas Lane: Okay. That's good color. And just one last thing on working capital, the use of working capital is more than twice what it was last year. Is there something going on there specifically that is using up more cash than last year? Sean Sullivan: I mean, again, we talked about the inventory. We talked about some of the investments we're making in IT and some of the systems. So I think that, Doug, is having some impact of it. But overall, I feel good about the free cash flow outlook conversion as well. So I don't -- I feel very comfortable about our working capital position. David Maher: Well, thanks, everybody. As always, we appreciate your time on these calls, and I look forward to connecting in a few months as we wrap up the fourth quarter in 2025 and start talking more in earnest about 2026. Thanks again. Operator: This concludes today's conference call. Thank you all very much for joining, and you may now disconnect.
Operator: Good afternoon. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Nextdoor's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. You may begin the conference. John Williams: Thank you, operator. Good afternoon, everyone, and welcome to Nextdoor's Third Quarter 2025 Earnings Conference Call and Webcast. I'm John T. Williams, Nextdoor's Head of Investor Relations. With me today is Nirav Tolia, our Chief Executive Officer. As a reminder, during this call, we may make statements related to our business that are forward-looking statements under federal securities laws. These statements are not guarantees of future performance. They are subject to a variety of risks and uncertainties. Our actual results could differ materially from expectations reflected in any forward-looking statements. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our SEC filings available on the SEC's website and in the Investor Relations section of our website as well as the risks and other important factors discussed in today's earnings release. Additionally, non-GAAP financial measures will be discussed on today's conference call. A reconciliation of these measures to their most directly comparable GAAP financial measures can be found in the Q3 2025 Nextdoor investor update released today. And now I'll turn it over to Nirav. Nirav Tolia: Thank you, John, and good afternoon, everyone. I'm Nirav Tolia, Co-Founder and CEO of Nextdoor. Q3 was a quarter of steady execution, and our results are consistent with the plan we've communicated. We delivered our highest quarterly revenue ever and generated positive Q3 adjusted EBITDA. In addition, we are on track for positive adjusted EBITDA in Q4 and are reaffirming our expectation for full year 2026 breakeven. Let's talk more about Q3. Revenue grew to $69 million, up 5% year-over-year and reflecting strong demand from self-serve advertisers who continue to be drawn to our Nextdoor Ads platform. ARPU improved 8% year-over-year even amidst reduced ad load. On the large customer front, we delivered on our commitment to complete our programmatic supply integrations, enabling deeper collaboration with scaled parties who are looking to reach audiences on Nextdoor more efficiently. Our self-serve channel continues to be a growth engine. Q3 self-serve revenue grew 33% year-over-year and made up roughly 60% of total revenue. Advertisers saw meaningful gains, including higher click-through rates and lower cost per click. We also grew our active customer base and associated net new advertiser spend. In short, our ad stack investments are delivering results, and we expect the introduction of new ad formats and deeper AI integration over the coming months may further improve monetization. Q3 platform WAU, defined as users who engage directly on the Nextdoor app or website was $21.6 million, a modest sequential decline. This was driven by an intentional decision to reduce notification and e-mail volumes, reflecting our focus on engagement quality over quantity. In the short term, Platform WAU may continue to fluctuate due to seasonality and our continued commitment to delivering the best user experience. As I've said many times before, we will deliberately make trade-offs even if they are difficult, all in the interest of driving long-term and sustainable growth. Continuing, Q3 GAAP net loss was $13 million. Q3 adjusted EBITDA was $4 million, a positive 6% margin, representing 8 points of year-over-year improvement. This reflects our strong revenue performance and continued focus on operating the company as efficiently as possible. Further, revenue per employee has now increased 21% year-to-date. And at quarter end, we had $403 million in cash, cash equivalents and marketable securities, along with 0 debt. Now let's move on to our financial outlook. We expect Q4 revenue between $67 million and $68 million and adjusted EBITDA in a range between $3.5 million and $4.5 million. This implies full year 2025 revenue growth of 3% to 4% and an approximately $3 million adjusted EBITDA loss. We do continue to expect full year adjusted EBITDA breakeven in 2026. Here are some key factors to consider related to our Q4 outlook. Our Q4 guidance reflects normal seasonality and a full quarter of savings from our recent workforce reduction, partially offset by incremental platform investments. We do not plan to increase ad load in Q4 or into 2026 as we continue to prioritize the best user experience. Consistent with this approach, we also expect to intentionally reduce new user acquisition efforts during Q4. Those are the numbers, and now I'm excited to go into more detail about our product, the true driver of long-term value. The first phase of our transformation, marked by the launch of the new Nextdoor, rebuilt our foundation. We reset our expense base, strengthened our team and instilled greater operating discipline. At the same time, we enriched the platform by pairing user-generated content with trusted third-party local information that drives meaningful conversations and real-world utility. At quarter end, more than 4,000 local publishers are live on Nextdoor, and local news now accounts for approximately 7% of total feed content. We also created a real-time local alert system to help neighbors stay informed and safe during high-impact local events such as fires, inclement weather and utility outages. New integrations include WAU's real-time traffic and road updates and instant earthquake alerts from the U.S. Geological Survey. Looking ahead, we will continue leveraging third-party content to reinforce Nextdoor as the neighborhood's go-to source for what's happening nearby. This foundational work has helped clarify what users truly value and has given us a stronger and more sustainable baseline for growth. That said, the takeaway is clear. We must continue to dramatically increase high-quality content and distribute it more effectively to the right users at the right times. So now we're entering the next phase. We're moving beyond the content feed to build a stronger neighborhood ecosystem grounded in a vibrant, useful and trusted local community. Community-driven content has always been part of our DNA. Our opportunity now is to modernize how we surface and connect it, focusing on the interactions that drive real-world outcomes, providing utility for neighbors and visibility for local businesses. Authenticity is what matters, and we have a material opportunity to invest further in neighbor recommendations. Neighbors want to know why a business is trusted. Real recommendations from verified neighbors build that trust, and we know that's what sets Nextdoor apart. With this in mind, we plan to reinvent our recommendations ecosystem to turn authentic word of mouth into actionable insights that help neighbors make smart decisions and help local businesses thrive. We believe these efforts can meaningfully improve engagement and monetization all across our platform. Ultimately, our goal is to create more relevant and trusted connections that reflect how neighbors engage in the real world with each other and with local businesses. The first phase gave us stability and insight. The current phase is where we take bold swings and begin to see the results. As we move forward, we'll focus on a few key indicators: quality and quantity of content, depth of engagement and the value we create for advertisers. We will avoid chasing short-term metrics in favor of investing in durable compounding growth initiatives. Transformation takes focus, it takes courage, and it takes time. It is not a straight line and is neither predictable nor immediate, but it represents the best path for us to unlock the next phase of growth for Nextdoor and create lasting value for our users, advertisers and shareholders. Before wrapping up, I'd like to share an important leadership update. I'm pleased to announce that we've hired our next Chief Financial Officer. Indrajit Ponnambalam will be joining Nextdoor as CFO, effective December 1, 2025. Indrajit brings more than 2 decades of experience leading high-performing finance and operations teams, most recently as CFO at Premion, an industry-leading connected TV advertising platform and prior to that, at Match Group, Time Warner Cable and AOL. He has a proven track record of driving growth, achieving operational excellence and financial rigor at scale, and we are thrilled to have him on board. In closing, we remain laser-focused on building a platform that makes neighborhoods more vibrant, more connected and more useful. At our core, Nextdoor is about real local connections that create value every day. That vision will continue to guide us in everything we do. Thanks for joining our earnings call today. I'll now turn it over to the operator to begin Q&A. Operator: [Operator Instructions] Our first question comes from the line of James Sherman-Lewis from Citigroup. Jamesmichael Sherman-Lewis: Nirav, first for me here, we're only about 4 months out from the launch of the new Nextdoor and understood the commentary around it being a nonlinear transformation, but would love any insights you have into the underlying customer engagement, specifically that depth of engagement metric that you mentioned? And then I have a follow-up. Nirav Tolia: Great. Thank you for the question. And yes, we're 4 months out, and we are excited about the progress. You may remember that initially, we talked about the new Nextdoor as being focused on news, alerts and recommendations. We now have news as approaching 10% of newsfeed content. We know that alerts are essential to our users, and we've seen that in the metrics. And then finally, I talked about in the comments that recommendations is the big swing that we plan to take next because we think it has the most potential of anything that we've worked on. What we're seeing with our user base gives us a lot of optimism. We know that we've made the content more relevant even amidst reducing notifications and keeping ad load exactly where it is. What we also know is that 7% of new content, which is what the news represents is not enough. The way Nextdoor works best is when there is so much content that's showing up in your neighborhood that we can use AI and ML to show you the most relevant things for you, whether that's from a proximity standpoint or from your affinity standpoint. And so the real focus for us is on dramatically increasing the amount of content. What we've learned from the new Nextdoor is when we add more high-quality content, we see deeper engagement. And so we now have the signal that we need to really bear down and do our best work. Jamesmichael Sherman-Lewis: That's helpful. Second here and potentially a little bit more tactical. The notification changes in 3Q and the planned pullback in new user acquisition for 4Q, can you update us on how you see your user acquisition strategies evolving into 2026? Nirav Tolia: Yes, it's a great question. So the reason that we mentioned that is because as we continue to focus on the best user experience, the thing that we need to do is to ensure that the first time a user comes to Nextdoor, they have the best possible experience. We have a number of things that we plan to release over the next couple of months that we believe will create a better cold start experience. And we use cold start to represent the first time that you come to Nextdoor. Today, when you come to Nextdoor, you see the same thing that someone who's been a Nextdoor member for 10 years may see. And we know that it should be a different experience. And so as we work towards a specialized experience that will be fully suited for the new user to Nextdoor, it makes sense for us not to be aggressive in new user acquisition. We just wanted to make that statement as an example of how we are looking at long-term value creation versus trying to make all the metrics go up in the short term. Operator: Your next question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: Nirav, so when you talk about adding more content, can you just give us a sense of where that comes from? Like are you talking about inspiring more user-generated content? Or is this an expansion of some of the third-party publisher partners that you've already started to ingest on the platform? Nirav Tolia: Jason, thank you for the question. And you kind of answered it, but I'll give you more specifics. So we've now got at quarter end, 4,000 publishers that are pumping news content into Nextdoor. We think there's more upside there, and we certainly think that there's more upside in integrating more third-party alerts but as you indicated, we believe the greatest opportunity is where Nextdoor's DNA is, and that's user-generated content. And so the next phase for us is to think less about integrating external content and to think more about revving up our internal user-generated content engine on Nextdoor, which has really been, again, at the DNA of how we were created. We think the natural place for that to start and potentially the most impactful is in neighbor recommendations. And so you should expect to hear a lot more about that in the months to come. Jason Kreyer: That's great. Also, I just wanted to see if you could give an update on the build-out of your programmatic capabilities. Curious on kind of what you're doing on platform and then off-platform. I know you recently did a deal with Yahoo. So maybe a little perspective on both would be great. Nirav Tolia: Yes. That's a great question as well because we have spoken about this throughout the year. So the first thing to say very specifically is that we've completed the supply side platform integration earlier this year, and we're currently testing with DSPs. We have announced that off-platform deal with Yahoo!, so now an advertiser can go into Yahoo's DSP, find Nextdoor audiences to target against and then campaign directly from Yahoo. The way we see this is that programmatic generally complements direct sold inventory and is additive. It was a capability that we were asked to add to what we were doing at Nextdoor, and we always knew that we would. We announced it back, I think, in the Q4 earnings call almost 6 or 7 months ago. And I'm delighted to say that we've actually lived up to what we said. And so we expect that to pay dividends again in the months and quarters to come. Operator: Your final question comes from the line of Naved Khan from B. Riley Securities. Ryan James Powell: This is Ryan Powell on for Naved. So I wanted to ask another question on the alerts and notifications. So obviously, you mentioned that you had reduced the alerts. Was there an improvement in engagement for the alerts that you were surfacing? And then also, were there any differences in trends for users coming from alerts versus entering the app organically? Nirav Tolia: That's a great question. So obviously, if we are materially decreasing the number of notifications, but yet experiencing a growth in revenue, you can see that the alerts and notifications that we are sending are more effective. And so that's obviously playing out in the numbers, and we expect that to continue to play out. In terms of what we are seeing specifically in user behavior, the third-party alerts in particular, around inclement weather, around now traffic with ways and earthquake alerts from the USGS, those are particularly effective at resurrecting users who may not have been to Nextdoor in some time. And so if we're very honest with ourselves over the past few years, we lost our way a little bit. And the content was not as relevant as it should have been. Alerts on the other hand, particularly the way we built the new alerts platform, which targets a particular area that is very specifically being affected by the alert, those perform quite well. And we think that they are a way to get lapsed users back onto the platform. And when they come back on the platform, because of the other improvements that we've made, they should come back more frequently. Okay. I think that was our final question. And so I'd just like to make a few closing remarks. We are very excited about this next phase of our transformation. We know that our foundation is strong. We've stabilized the business, driven material gains in productivity and our product and operational changes are starting to bear fruit. But it's very, very important for us to state that we're fully committed to building the best product. There are no shortcuts here, and we will make the necessary trade-offs to unlock long-term and sustainable growth. And that's all because our conviction in Nextdoor's potential has never been higher. We have a clarified strategy. The team is super focused, and now it's all about having the courage to do what it takes to win. So with that, thank you for joining the call and for your interest in Nextdoor. Operator: That concludes the meeting. You may disconnect.
Operator: Welcome to the Forward Air Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Tony Carreño, Senior Vice President of Treasury and Investor Relations. Tony Carreño: Thank you, operator, and good afternoon, everyone. Welcome to Forward Air's Third Quarter 2025 Earnings Conference Call. With us this afternoon are Shawn Stewart, Chief Executive Officer; and Jamie Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air's third quarter 2025 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining third quarter 2025 earnings highlights and a business update. Both the press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This includes statements which are based on expectations, intentions and projections regarding the company's future performance, anticipated events or trends and other matters that are not historical facts, including statements regarding our fiscal year 2025. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. During the call, there may also be a discussion of financial metrics that do not conform to U.S. generally accepted accounting principles or GAAP. Management uses non-GAAP measures internally to understand, manage and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn. Shawn Stewart: Good afternoon, everyone, and thank you for joining us. Today, there are 3 main topics that I'd like to cover. First, I will provide an update on our strategic alternatives review process. Second, I will provide an update on the progress we are making on our transformational journey, and I will close with a few comments on the third quarter results before turning the call over to Jamie. Beginning with the strategic alternatives review, we are aware of the rumors in the market over the last several months. I want to be clear that the strategic alternatives review process is ongoing. I also want to acknowledge the length of the process to date and emphasize a few critical points. Over the course of this review, we have had discussions with multiple interested parties and discussions are continuing. We conducted appropriate proactive outreach to interested parties. Along the way, other parties have also initiated dialogue with us at different points in time. Obviously, we welcomed inbound inquiries, the timing of which was out of our control and has contributed in part to the length of this review. The review to date has been a thorough and inclusive process to explore all available opportunities to maximize value. The process has and continues to include the evaluation of a potential sale, merger or other strategic or financial transactions relative to the long-term value potential of the company on a stand-alone basis, as well as a review of the components of our portfolio to ensure there is a long-term strategic fit. Our Board is taking the time it needs to be methodical, thoughtful and comprehensive to ensure that we pursue the best possible outcome for the company and all of our shareholders. With all that said, we do not intend to disclose further developments relating to the process until we determine an update to be appropriate or necessary. And when we do, we will let you know. Our policy is not to comment on rumors, and that will continue to be our policy. On a commercial and leadership basis, the good news is that we did not recognize at the outset, is how much this process would bring our team together. We are more aligned and more in tune and more connected beyond what I would have ever thought. And as you will see when Jamie previews the results, we are focused on running the business and are continuing to deliver positive period-over-year results in one of the most challenging markets in years. As for my second point and our continued transformation, I am pleased that we are also continuing to execute our plan to become a unified company as discussed on previous calls. Over the past several quarters, as we work to transform the operations of our U.S. and Canadian businesses, we have focused on a clear and strategic goal, which was to unify our operations under a new regional structure and harmonizing our blueprint. The goal laid the foundation for the creation of our One Ground Network, a positive step forward in aligning our business for the long-term success under a single leader, Tim Osborne, President of U.S. and Canada Operations. The One Ground Network brings together the operations of our businesses to form a more cohesive and agile organization. It includes the unification of our U.S. domestic ground operations and brings together key service lines: line haul, pickup and delivery, truckload brokerage, and expedited services into a single streamlined structure. By doing so, we are removing silos, simplifying how we work and unlocking new efficiencies. However, it is important to note that we expect our sales channels to continue to function separately, providing the same solutions and service that they always have, while our operations remain fully agnostic across the network, delivering the same best-in-class, on-time service and one, if not the best industry claims results. Our team handles every shipment with the same discipline, precision and care, keeping our focus where it belongs on service-sensitive freight and operations excellence. For our customers, it means the same seamless and reliable experience that they have been accustomed to and expect from us. For our employees, it means clear priorities, enhanced collaboration and more opportunities to grow within a connected network. For our business and future results, it positions us to accelerate and leverage growth. We are also continuing to rationalize our tech stack, including upgrading and minimizing the number of systems across the company. We expect these changes to enhance efficiencies, improve real-time data-driven decisions and drive cost savings as a result. Regarding the quarterly financial results, we reported a consolidated EBITDA, which is calculated pursuant to our credit agreement of $78 million, in line with the $77 million reported in the second quarter of this year. I am extremely proud of our team for focusing on what they can control and delivering a solid quarter as we navigate through an extended freight recession, a strategic alternatives process and continued transformation of the company. We are focused on delivering industry-leading quality of service with our world-class leaders, while tightly managing cost and prudently managing the business. We are optimistic that market conditions will eventually rebound, and our focus is on continuing the progress we have made over the past year and keeping that momentum over the long term. With that, I will now turn the call over to Jamie to go through the detailed results for the third quarter. Jamie Pierson: Thanks, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported consolidated EBITDA of $78 million in the quarter. The third quarter and LTM results were favorably impacted by cost reduction initiatives that we enacted equating to approximately $12 million on an annualized basis. The initiatives primarily included rightsizing our business to align with the current freight demand and on our ongoing transformation strategy that Shawn discussed earlier. On an adjusted EBITDA basis, we are cranking out very consistent performance, reporting $75 million in the third quarter of this year compared to $74 million in the second quarter of this year and $76 million in the third quarter of last year. At the Expedited Freight segment, third quarter reported EBITDA was $30 million with a margin of 11.5%. The margin is the second highest since the fourth quarter of 2023, and is in line with the $30 million reported EBITDA and 11.6% margin in the second quarter of this year. In the third quarter a year ago, reported EBITDA was also $30 million with a margin of 10.4%. Despite a challenging freight environment and a decline in tonnage, we have significantly improved pricing programs and actively managed discretionary expenses. Our focus has been on maintaining the right freight mix in our network at optimal prices, which has resulted in an improvement in reported EBITDA, as it has grown from $18 million in the fourth quarter of 2024 to $30 million in both the second and the third quarters of 2025, and the margin has improved from 6.6% to 11.6% and 11.5%, respectively. At the Omni Logistics segment, we're excited with the steady progress that we're seeing. In the third quarter, we achieved the highest revenue and reported EBITDA, excluding the impact of goodwill since the transaction in the first quarter of last year. Sequentially, from the second quarter to the third quarter of this year, revenue increased by $12 million to $340 million and reported EBITDA increased from $30 million to $33 million. The margin also improved sequentially by 60 basis points to 9.6%. On a year-over-year basis, reported EBITDA improved from $27 million in the third quarter last year compared to $33 million this year, which is a 22% increase. The margin also improved by 160 basis points, up from 8%. Relative to the challenges in the broader market and especially port activity, the Intermodal segment and the drayage business we service continues to deliver solid results. This management team persevered and performs well in both good and challenging market environments. In my opinion, they are the best team in the drayage space. In the third quarter, this segment reported EBITDA of $8 million, which was in line with the $9 million in the second quarter of this year and the third quarter a year ago. Rolling up all of the segments and on an LTM basis, consolidated EBITDA was $299 million. As usual, we have detailed the information used to reconcile the adjusted and consolidated EBITDA results on Slide 31 of the presentation. And as a quick heads-up regarding consolidated EBITDA for the prior 3 quarters, you will see that we have adjusted the previously reported amounts by the actions we took in the third quarter to improve our cost structure. The credit agreement allows for the inclusion of unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. As such, we appropriately adjusted the prior quarters to reflect the impacts of the cost savings. If you would, please reference Page 12 in the slide presentation issued today, and you will be able to see what we reported in the past and updated for the most recent cost-out and pro forma actions. Turning to cash flow, cash and liquidity. We reported $53 million in cash provided by operations in the third quarter, which is a $2 million increase compared to the $51 million in cash provided by operations a year ago. For the first 3 quarters of 2025, we've reported $67 million of cash provided by operations, which is a $113 million improvement compared to the same period a year ago. As for liquidity, we ended the third quarter with $413 million in total liquidity, comprised of $140 million in cash and $273 million in availability under the revolver. This is a $45 million increase compared to the $368 million at the end of the second quarter. And as usual, I'd like to leave you with a few additional thoughts for the quarter. The first of which is, as you've heard from Shawn in his opening remarks, we are making progress upgrading our tech stack as a part of the broader transformation. This includes the One ERP initiative to move from multiple ERP systems to one. This project will unite all company financial systems on a single streamlined platform. With all financial data in one place, standardized reporting and uniform processes, we expect our team will be more efficient and more effective. The project will have a phased rollout and with a completion expected by the end of next year. Point two, in a tough market, we continue our focus on controlling expenses and adjusting to demand by rightsizing our cost structure commensurate with the support needed to continue serving our customers at the highest level, and the level they are accustomed to receiving from us. It is important to note that the focus on our cost structure did not impact our service levels and still led to another solid quarter and sequential improvement in consolidated EBITDA. The final point is prioritization and focus on cash generation. As you heard earlier, cash provided by operations significantly improved by more than $100 million in the first 9 months of this year compared to a year ago. On Slide 23 of the earnings presentation, you will see that on a non-GAAP basis, we generated $79 million in operating cash flow in the third quarter and $176 million year-to-date through the third quarter. I will now pass the mic back to Shawn for his closing comments before Q&A. Shawn Stewart: Thank you, Jamie. In closing, I want to express my deep pride in our team for their unwavering dedication and consistent focus on the customer. Their ability to execute operationally with precision while maintaining rigorous control over cost has been truly exceptional. This disciplined approach not only strengthens our day-to-day performance, but also positions us well for the challenges and opportunities ahead. Despite the uncertainty in today's macroeconomic environment, I remain confident in the strength of our team. We have built a solid foundation that is well equipped to drive sustainable long-term growth. Our team's commitment to excellence ensures that we continue to deliver meaningful and measurable value to our customers and are positioned very well for when the freight stabilizes. As we go into Q&A, I would like to focus our comments on the state of the industry, the business and not on the strategic alternatives review process. As you know, we cannot further comment. Thanks in advance for your understanding. I will now turn the call over to the operator to take questions. Operator? Operator: [Operator Instructions] Our first question comes from Bruce Chan with Stifel. J. Bruce Chan: Maybe just wanted to start with Omni. That business has certainly come a long way, and it looks like you're finding some stability here with EBITDA margins. But the segment has also gone through a lot of change, especially given the volatile environment. So maybe as you think about that business longer term, if you could just remind us what your longer-term margin targets would be there? What kind of earnings power you think you can see in that business? And then how do you -- maybe think about that in the context of seasonality as we move into Q4 and 2026? Shawn Stewart: Bruce, it's Shawn. So yes, I would say we've done a really good job of turning this business around. really driving the synergy selling where we had segments of customers' revenue in one of our many diversified offerings and spreading that more into the other offerings. And that's really where the growth is coming from. I would say it's rather hard to say right now what that optimal margin is because it's suppressed right now just because of the overall market. But Jamie, do you want to comment at all on margins or? Jamie Pierson: Yes. Bruce, if you look at Page 28 in the slide deck, it's one of my favorite pages because it has a couple of different interpretations. I'm going to go right to left. And then I might answer your question on Omni specifically because that's what you're asking. If you look at the Intermodal, the drayage business continues to be at the highest end of the publicly traded peers. I mean -- and there is no pure comp. We all know that. But they continue to be a market leader in terms of margin in the Intermodal side. And then on the Omni, we've got a collection here of 5 comps. You've already done the analysis, you know who they are. But we're at the upper end of the margin already in our collection of assets. And the real upside is on the LTL or the expedited side of the business. So we've got -- that's where I'd say the greatest opportunity is. And the one thing that I think it's lost here on this page, even talking to you specifically on -- or answering your question specifically on Omni is that when you buy 1 share of stock in Forward Air, you're buying a portfolio or a collection of logistic assets. And Omni is one of those. And it actually is performing very well, especially on the contract logistics side of the equation. So I think we've exceeded, in my opinion, and many different people out there can argue with me. But I think we've exceeded most people's expectations in the way that this particular segment has performed since the acquisition. So I'd say that's an incredibly long-winded answer to your question that we're at the upper end of the margins already. J. Bruce Chan: No, that's really good color. So I guess if I could just follow up on that. It sounds like we're at the point now where we can start to think about maybe some more seasonality in this business and other businesses. And if I could expand on that a little bit, any kind of commentary on how you're thinking about fourth quarter? I know you all tend to have a little bit more retail exposure, for example, than some of your peers. Jamie Pierson: Yes. So are you talking about Omni specifically or the portfolio? J. Bruce Chan: Yes. First part, Omni and then if you want to brought that up to the rest of the portfolio. Jamie Pierson: Yes. So if you look at Omni, it's not going to be as seasonal as I think you would otherwise -- would surmise that it would be only because of the warehouse side of the business, right? So that's a pretty stable business. It doesn't have a real seasonal trend to it as much as it does the air and the ocean. I'm looking forward, Bruce, to the day soon in the next probably couple of quarters that we're going to be able to break that -- those segments into their different services. But I'll tell you right now, on the Omni basis, it's going to be a little bit more muted than you would otherwise anticipate because it doesn't have that seasonality. Now on Intermodal, if you see the port volumes as they're forecasted in the next 3 months, by month, it's going to be continued, what I would say, malaise, not a great port read. But I'll tell you what, this team continues to stroke out $8 million to $10 million in EBITDA every single quarter, irrespective of the environment in which they operate. And then lastly, on the LTL side, what we're noticing is no different than what our peers, our competitors said on their calls, is more of the same of what we have right now. I'm not seeing a seasonal leg down nor am I seeing a -- it's not going to be increasing, obviously, now in November being an 18-day month. But I'm just seeing a little -- I'm seeing more of what we've experienced over the last couple of quarters. Operator: Our next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to follow up on the LTL side. Look, I think in previous calls and in our conversations, you've talked a lot about really fine-tuning the organization on the LTL front and really just getting, I guess, adjusting operating costs to revenue, and it clearly remains a really weak environment. So maybe you could give us a little bit of an update on the progress on kind of realigning costs, and maybe kind of bifurcate what's just been a function of this is a weak environment and what is something that we think is sustainable that really speaks to the actions that you've made over the last year? Shawn Stewart: Stephanie, it's Shawn. So I'll take the first part of that and let Jamie add in. So the one thing that -- especially to our peer group on comps, the one thing that we want to make sure to constantly remind the analysts, especially is that we are not a fixed cost network. We're a variable cost network. And a majority of our fleet is owner operators. And so one of the things that the team does extremely well is they adjust their purchase transportation cost based on volume. So when volume is down, mainly what we do is we move those drivers from an LTL segment to the Truckload segment. And right now, truckload is booming. And so we're not letting go of any drivers. We're just moving them from LTL to TL. And we've really capitalized by doing so. And so that brings down the purchase transportation cost. And then a couple of internal initiatives that we've done is, obviously, we've dramatically improved to the operating team, our productivity measures on the floor, as well as we've introduced and we've been running for several quarters now, 2 different optimizers looking at the miles that we run and the service that we offer and how do we do that with less miles and still not jeopardizing our service. And we've -- Tim and team have now decided on one optimizing tool that we will use moving forward. It's not a tool that was here, at least when I got here, and they've done a fantastic job. So that's more of not just removing the drivers from LTL over to TL, but at the same time, drawing down miles and being more optimal as we manage through this time. But it's something you should do anyways even in high seasons as well as these low seasons. So hopefully, that helps, but I'll be quiet and see if you have any questions to what I just said. Jamie Pierson: Steph, let me add on it real quick with a little bit more specificity. If you think about it on a year-over-year basis, in terms of improved operating performance, we took out a little more than 300 FTEs on a year-over-year basis. And over that same period of time, we actually improved safety, arguably improved quality, held claims flat at one of the best rates in the entire industry, and we have fewer labor hours per shipment. So operationally, pretty damn good. And then to build on Shawn's point about it being more of a variable versus a fixed solution, certainly helps us flex down in times such as this. But if you look at Page 13 of the earnings presentation, on a reported basis, even though we've got slightly lower revenue, we're still cranking out $30 million in reported EBITDA and a mid-11% EBITDA margin. Stephanie Benjamin Moore: Yes. No, absolutely. And I think -- and Shawn, I think that's crystal clear. Maybe just as a follow-up question, I appreciate that you really can't and don't want to speak on terms of anything on the process or the like. But maybe asked a different way, is there any update on when you might be able to speak on the process? Shawn Stewart: I would say, Steph, if I had that, I would. So look, it's a very detailed process that the Board is running. And as soon as we can, we will update you. Operator: [Operator Instructions] Our next question comes from Scott Group with Wolfe Research. Scott Group: So I just want to -- I know you can't say much, but I just want to make sure I'm understanding what you were trying to communicate in your prepared comments about the duration of this process. Is the point you were trying to make that -- not that there is a lack of interest or the interest was dropping, it's that there was incremental new interest and that is what's slowing down the process? Is that the point you were trying to make? Shawn Stewart: So Scott, this is Shawn. No, I think I was pretty clear in the points I was trying to make. There was a good interest, obviously, in our organization and whereas different periods of times where interested parties came in. I'm not blaming wholeheartedly that that's what's elongated it. But between interested parties and other parties coming in at different times is where we are today. Scott Group: Okay. You made a comment a minute ago that Truckload is booming. I have not heard that from anyone. And then, Jamie, you made a comment LTL was not really -- is stable and not really dropping off and a lot of the other guys have talked about LTL really dropping off. So those were just 2 interesting comments I haven't heard from others. So maybe if you could just add some color to those 2 things. Shawn Stewart: Well, to be clear, our Truckload is booming. There's a lot of high tech moving. And that high tech requires asset-only companies, of which we are and a lot of security, and that is something that we're really great at. And so our Truckload is booming. Jamie Pierson: Yes. And I'd even say that's the circle of livestock for us. So when I say LTL is stable, volume is down, but that volume is being -- modality is shifting from LTL to TL. So we're picking up some of the volume that we're losing on the LTL side on the TL side of the house, to support Shawn statement. And then in terms of LTL being stable, look, I don't -- I'm not trying to say that our volume is stable. That's not what I'm saying. It's clearly not. Volume is down, but there's 2 other things that we're doing in order to deliver stable earnings. And that is an increase in pricing and an absolute maniacal focus on operating more efficiently. So the stability of my comment is more on the $30 million of reported EBITDA for last quarter, this quarter and the quarter a year ago. Scott Group: Okay. And then maybe just lastly, Jamie, just give us an update on how you're thinking about cash flow going forward into Q4? I know seasonally, there's the interest ramp in the debt payments. And then just remind us the calendar of when the credit, the covenants start to get a little tougher. Jamie Pierson: Yes. Scott, you're all over it. So the semiannual senior secured note payments gets made in April and October. So the quarter that is in between is when we make all the money and then we generally lose a little bit in the quarter that we make that payment. We're just going to make more in the quarter that we don't. And it's exactly what we did this quarter. I'd say we did very well in terms of not only managing the operations, but also managing the balance sheet, which then increased cash by $45 million in this quarter as a stand-alone period. And then in terms of the covenant step down, we're at 6.75x this quarter. Next quarter, it starts to tighten by 0.25x and it does so every single quarter into the fourth quarter of 2026. At what point it levels out at 5.5x and it stays there through maturity. Operator: Our next question comes from Christopher Kuhn with Benchmark. Christopher Kuhn: I think in the past, you guys talked about the benefit of the combined company and giving us some examples. I mean, I'm just wondering if you have an update on that. Shawn Stewart: Run that past me one more time, Chris, sorry. Christopher Kuhn: Yes. I think in the past, you've talked about winning business as a combined company with Omni and the LTL business and some of the other businesses within Omni. So I don't know if, obviously, you still feel that way, but if you have any sort of thoughts on that? Shawn Stewart: Yes. I mean, look, we -- on the Omni side, we win business regardless. And obviously, we want to put that into the, I'll say, the legacy Forward Air LTL. But if there's a solution that's better to get it -- to gain that business than outside of our network, we'll gain the business on the Omni side. But I would say in a lion's share, we put the majority of -- if it's a ground or a domestic sell only, we really focus on -- if we can't find a way initially to get in the network, we figure out a way eventually to put it in the network. So the combination of the 2 organizations really support the growth. But at the same time, we're still able to handle the legacy, what we call the indirect market with our fantastic freight forwarders and 3PLs, and do that in a proper mannerism to help them continue to grow with very minimal to none of conflict between our organizations. I'm not going to say there's none, but there's very minimal, and we've managed those through our partners. So it's working and it's working well. And I'm really pleased with what we are able to do as a combined company, especially compared to the onset of everybody thought this was going to be a disaster at least when I got here. So I think we're in a good place. Christopher Kuhn: And then I think you talked about the LTL to TL conversion. I mean, obviously, any updates on that? Is that still going on? I guess, what do we need this TL sort of spot prices to start going back up to get that reversed? Shawn Stewart: Yes. You've got a couple of things there that, yes, we need the spot rate to go up. The team moves our assets, LTL,TL, back and forth depending on volumes in LTL and depending on need on the TL side. And so that's a pretty constant move back and forth on a weekly or daily basis. But yes, going back to -- when you look at overall volumes with the spot market the way it is as low as it is, when you look at LTL volumes, they're in the Truckload capacity. And if an organization is able to trap and put it in a Truckload at a lower per pound rate basis than a traditional LTL, whether it be us or anybody else, that's what they're doing. But as that rate moves up, that shift from TL will start to slowly come back into LTL. And that's really what we -- that's the majority of where the volume is today that's not in LTL today. Jamie, you want to add? Christopher Kuhn: So you think that shift occurs over time. It's not like it takes a while for them to go back from TL to LTL or it depends where you look at? Shawn Stewart: It just depends on what their procure rate is and the longevity of that contract with those truckload providers. Jamie Pierson: Yes, I would actually say it's not an event. Shawn Stewart: Yes, it's not a onetime event. It's over time. Jamie Pierson: Yes. So if you look at the Cass, and the Cass Index being like $1.25 a mile, it would probably have to creep back up over to the $1.50 a mile before you see something meaningful, but it's going to happen along the way. Anything above $1.50 to $1.60 per mile on the Cass, I would say is getting back to what I would term is a more normalized balanced LTL to TL market. Operator: Our next question comes from Bascome Majors with Susquehanna. Bascome Majors: I wanted to go to the mix detail that you kind of broke out for us a bit more functionally earlier this year on Slide 7. I mean that's 2024. I know we can do some of this with your reported revenues, but we don't have a lot of breakdown on Omni. If we looked at that 70%, 12%, 9%, 9% split you laid out for '24, how would that look different today for kind of where we're exiting '25 as we think about the business and sort of cyclical views into '26? Jamie Pierson: Yes. We don't, Bascome, to be direct. We picked this as a point in time to show -- give an indication or tip of the hat where we're going to start reporting the business in 2026. So it's more of a lift than you would ever imagine. But this is how we intend to report the business starting next year. But in terms of how that's changed since last year, I wouldn't say meaningfully, but it does change. It changes every single day, but it's a $2.5 billion battleship. So it takes -- it would have to take a seismic change to move these numbers materially. Bascome Majors: Maybe if I ask it just directionally another way. Within Omni, has the air and ocean side of the business from a profit perspective, outgrown or undergrown the warehousing and value-added piece? Jamie Pierson: Yes. We don't break out that level of detail. At least today, we don't. You'll see it next year in the level of detail that you want. Right now, we consider all 3 of those still in a single segment. I know you're asking, Bascome, but I'm not going to answer. Bascome Majors: No, understood. Well, and as we look into next year and kind of think about the business, just directionally from your opportunity to improve the bottom line further versus either cyclical or other risks you want to flag, like what are the 1 or 2 biggest upside potential drivers that you see for EBITDA in the next year and the 1 or 2 biggest risk across the entire portfolio? Jamie Pierson: You want to go first? Shawn Stewart: Yes, go ahead. Jamie Pierson: Yes. So in terms of the biggest upside right now is just operating leverage in the Expedited segment, whether that be in the form of additional volume or price, I don't not going to say that I'm indifferent because I am very different. I'd rather have the price and the volume. But right now, we've got this network at a level that any incremental shipment, just one shipment has a disproportionate positive impact to the bottom line. So I'd say that's going to be just increased density on the Expedited side. And then on the downside, I mean, this is -- I don't want to say that we've been operating in this environment for the last 3 years, but we've been operating in this environment for the last 3 years. If you think about ISM is below 50 for the last 34 out of 36 months. Tonnage in this space is down 21 out of 22 months and Cass is negative for 33 months. That's about 3 years any way you want to slice and dice it. So I think that we are found, at least from my perspective, the bottom. Can it get worse? Absolutely, can always get worse. So I guess the biggest risk would be further macro deterioration. And if that happens or not, Bascome, you know better than I do. Operator: It appears there are no further questions at this time. Let me turn it over to Mr. Stewart for any final remarks. Shawn Stewart: All right. Thank you, Angela. Listen, we really appreciate your interest and support. We remain extremely confident in our strategy and look forward to updating you at the next quarterly earnings call. So if you have any questions, please follow up directly with Tony, and we look forward to talking to you soon. Take care. Operator: This concludes today's Forward Air Third Quarter 2025 Earnings Conference Call. Please disconnect your line at this time, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Talen Energy Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Sergio Castro, Vice President and Treasurer. Please go ahead. Sergio Castro: Thank you, Michelle. Welcome to Talen Energy's Third Quarter 2025 Conference Call. Speaking today are Chief Executive Officer, Mac McFarland; and Chief Financial Officer, Terry Nutt. They are joined by other Talen senior executives to address questions during the second part of today's call as necessary. We issued our earnings release this afternoon, along with the presentation, all of which can be found in the Investor Relations section of our website, talenenergy.com. Today, we are making some forward-looking statements based on current expectations and assumptions. Actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today's discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release and the appendix of our presentation. With that, I will now turn the call over to Mac. Mark McFarland: Great. Thanks, Sergio, and welcome, everyone, to today's call. We appreciate your ongoing interest in Talen. Before we review the quarter, I'd like to start with where we are as Talen and talk about the broader landscape as we implement the Talen flywheel. Sitting here today, the overall market continues in the same trajectory as we've discussed in prior calls. AI and data center capital budgets continue to impress and expand. It seems like every day, there is another announcement, investment or idea floated on how to power growing data center demand. Demand for power keeps coming, and we will need an all-of-the-above approach to solve the growth from the supply side. Pennsylvania continues to drive economic growth through data center development and remains a pro-business place to invest. Governor Shapiro, the Pennsylvania PUC and the local communities have embraced these investments and recognize the advantages Pennsylvania brings to developers, including speed to market, while at the same time, they recognize the need to properly allocate cost, build new generation and keep residential rates in check. We are doing our part by evaluating options to solve short-term capacity questions and longer-term resource adequacy. It's why we recently signed an MOU with Eos Energy to partner on battery development in Pennsylvania and PJM using Pennsylvania manufactured batteries. As I've said in the past, for the next five years, we are going to need to solve a capacity issue, not necessarily an energy issue, and we believe batteries and peaking plants can solve this need much more readily than CCGTs and at overall lower cost. CCGTs will be needed, too, and we will look to build them in collaboration with the right partners and customers, but that is further off on the horizon. And while I have focused on Pennsylvania in these comments, we continue to be excited about the prospects in Ohio, given load there already exists, but more on that in the coming quarters. At Talen, we have a number of things in flight. First, we continue to execute under our existing agreements with AWS and the Susquehanna site continues to be built at an amazing speed and has been electrified. Second, we are working diligently to close the Freedom and Guernsey acquisitions, which will add to our baseload fleet and to our large load contracting strategy. As you know, we refiled our HSR application at the Department of Justice for a second time, restarting the 30-day time line, which now runs through November 17. We believe it was prudent to give the DOJ additional time because the transaction fails zero market power screens. We remain confident that we will close these acquisitions. I do note that this might take a little longer and bleed into Q1 of 2026. That said, we are pressing to get these deals closed as soon as possible and might be able to get them done as early as late this year. We are optimistic that FERC can then act on our 203 filings in short order. In addition to pushing our regulatory approvals or pushing them along, we also recently closed on a highly successful financing package. And lastly, with respect to the acquisitions, Dale and the fossil team are well underway on the planning to add both Freedom and Guernsey to the fleet, and Chris and the commercial team are ready to fold them into the portfolio when they can. We are truly excited to get going with these assets and want to thank the Caithness team on the professional transition to date. Third, we continue to pursue additions to the flywheel through large load contracts and additional megawatts for the portfolio. On the contracting side, there has been a fair amount of noise in the markets about our ability to contract, when we might be able to contract, how we might do so and how we will manage the so-called gas risk. Trust me, when we hear all of that, we just go about our business. We built a good comprehensive playbook with the Amazon Susquehanna contract and our focus currently on execution. Our strategy remains the same. Our efforts have only been redoubled and our focus has sharpened and our commercial learnings continue to expand. We have been working on the next thing since we signed the first AWS contract in early 2024 and gained a lot of commercial knowledge by changing that contract to front of the meter. Refiling of our HSR on Freedom and Guernsey does not change our path. Let me be more explicit as to why the exact closing of these deals doesn't impact our near-term strategy. In the rest of the portfolio, excluding Freedom and Guernsey, we have approximately 4 gigawatts of gas-fired generation between Montour, Lower Mount Bethel and Martins Creek as well as 300 megawatts of carbon-free power at Susquehanna remaining. Our efforts at Montour continue, and I'm sure you have seen that we are working on zoning and permitting at the site, which, by the way, if you were with us back in 2023, was the same activity we were undertaking at Susquehanna then. All of this activity goes on, all well before we close the acquisitions. And as I've said, we remain confident that we will still close the acquisitions in short order. So timing of closing of Freedom and Guernsey is really irrelevant to our contracting power strategy. We feel good about our ability to look at further expansion of the portfolio through acquisitions and continue to explore free cash flow accretive deals. And we are constantly challenging ourselves to reshape the portfolio. And I'm sure someone will ask when we might expect to announce the next part of the flywheel. And I'll say the same thing that we always say, which frankly, is next to nothing. You'll be the first to know when we're done. We want the right deals, not any deals and not on anyone else's time line. In the meantime, 2026 is setting up well. We are reaffirming '26 guidance, and we are starting to see forwards tick up. Gas is up, sparks are expanding and load continues to be strong. All factors that continue to impact commercial positioning on long-term transactions. Terry and Chris will walk you through what we are seeing in the markets in just a bit. Moving to the present and Q3 on Slide 2. As we said during our Investor Day call, we saw limited volatility and limited opportunity to capture incremental value in the third quarter, and the quarter was a little light of our internal expectations. but we already knew that and acknowledge that in September at our Investor Day. Going into the summer, we were looking to regain some of the lost opportunity from the spring outage at Susquehanna, but it just didn't materialize. Both July and August experienced fewer peak load days when compared to June, and we experienced incremental forest outages as our fleet continues to run with higher capacity factors and longer run times between maintenance. Terry will provide a few more details on this later. During the quarter, we delivered $363 million of adjusted EBITDA and $223 million of adjusted free cash flow. So far, in Q4, things are a bit better given the market move up, but we are still projecting to be at the lower end of our guidance range as we previously stated at that September Investor Day. Before I turn this over, I'd like to thank our entire Talen team for their hard work and dedication, and I'm happy to let you know that we have reached a five-year extension of our Local 1600 contract with the IBEW. So a special thanks to Rusty and the IBEW leadership team. At Talen, we are powering the future together. With that, Terry? Terry Nutt: Thank you, Mac, and good afternoon, everyone. Turning now to Slide 3. Mac covered the regulatory process, but let me provide an update on the financing of Freedom and Guernsey. Last month, we successfully executed several financing transactions at attractive rates to fully fund the acquisitions, including $2.7 billion of senior unsecured notes and a $1.2 billion senior secured term loan that contains a delayed draw feature. The pricing we received exceeded our initial expectations as the credit market continues to demonstrate demand for Talen paper. We also received commitments from our bank group to increase our existing revolving credit facility to $900 million and to increase our existing letter of credit facility to $1.1 billion, while also extending the LC maturity date by one year to December 2027, all to further support the impact of the acquisitions on the financial operations of the business. Congratulations to the treasury and legal teams for a successful set of transactions. We are currently earning interest on the senior unsecured note proceeds and will not draw on the term loan until the closing of either the Freedom or Guernsey acquisition. Turning to Slide 4. As Mac said earlier, nothing has changed thematically. The underlying fundamentals for Talen's value proposition remains strong. Macro fundamentals and AI demand remain intact. Last week, we continued to observe the trend of hyperscalers seeing tremendous growth in their cloud and AI businesses, which in turn has led them to continuing to raise or affirm their capital investment plans. As you can see in the chart on the upper left, the projected growth of spend from hyperscalers continues in earnest with total CapEx projected to be $700 billion in 2027. Not only is the capital commitment growing, but the acceleration of demand for power continues. For example, Amazon noted on their earnings call last week that they have accelerated capacity additions over the past 12 months by adding 3.8 gigawatts and expect to add over another 1 gigawatt in the upcoming fourth quarter. Further, they expect to double their overall capacity by 2027, which would add in excess of 10 gigawatts of capacity in North America alone. We see significant load growth coming over the next decade from hyperscalers as well as reshoring of manufacturing and the ongoing electrification of the economy. But what about the current load conditions? Q3 2025 provides a clear example of the change in the load growth in the PJM market. Overall, Q3 weather was flat compared to the same period in 2024 as measured by cooling degree days. However, the average electricity demand was higher. During the quarter, we saw approximately 3.4% of incremental power deliveries on a weather-adjusted basis in PJM when compared to the same period in 2024, a clear sign of demand growth in the market that is expected to continue. Furthermore, for the first time in over a decade, we experienced two of the top peak demand days at PJM during the heat event in June. These two demand peaks registered in at the third and fourth highest summer peak demand readings in the history of the market, further evidence of demand growth. Let me now turn it over to Chris to cover some additional market fundamentals on Slide 5. Christopher Morice: Thanks, Terry. This quarter, while relatively uneventful from a dispatch and weather perspective, did help validate our driving thesis that data load is here and more is coming. As Terry mentioned prior, below the surface, incremental load is beginning to manifest. We are seeing relative price strength in the face of very benign weather conditions. As cash markets are starting to feel this tightening, so too are the forwards. Looking at the chart on the right, you can see the market response over the past couple of weeks. And as you can see further, it has been a recent phenomenon, but one that we have been anticipating. Power is up, sparks are widening, and it remains a good time to be in power. And further, a really good time to be an IPP focused on being an IPP. Our native position is long several thousand megawatts of generation spread across the supply stack. Outside of the PTC and the data PPA, we have no other natural hedges. This informs our commercial strategy and allows us to participate meaningfully when we take a view on the market. And you can reference the appendix in back for those specific percentages. Similar to the forward, PJM capacity markets have been reflective of these tightening fundamentals as well, expressed through the all-time high BRA clears. PJM shrinking reserve margins continue to be a topic of discussion, both inside and outside of the RTO. PJM and the DOE have flagged potential supply shortfalls by 2030 if the trend isn't reversed. In addition to needing new supply resources, PJM's existing asset base will have to be relied on heavily to ensure grid reliability moving forward. The average amount of uncleared megawatts in the last two auctions was less than 1 gigawatt, and the recent released 27, '28 auction parameters show further evidence of continued tightening fundamentals. This auction is the final auction with capital floor in place. I'll note, we remain active participants in ongoing stakeholder discussions with PJM and other governing bodies, and we will see the results from that capacity auction on December 17. Back to you, Terry. Terry Nutt: Now to Slide 6, which covers our year-to-date financial and operating results. For the nine months ended 2025, we are reporting $653 million of adjusted EBITDA and $232 million of adjusted free cash flow. Our liquidity remains substantial with $1.2 billion of liquidity available for working capital, including approximately $490 million of cash available. Once we close on the Freedom and Guernsey acquisitions, we'll have $200 million more of liquidity as our revolver capacity will increase to $900 million. Excluding the acquisition financing, our leverage ratio is still within our 3.5x net debt to adjusted EBITDA target. Year-to-date, we generated 28 terawatt hours with over 40% of this generation coming from our carbon-free Susquehanna nuclear facility. Our year-to-date forced outage rate is higher than we have experienced in the past. This higher outage rate was largely driven by outages at our Martins Creek plant, which experienced prolonged outages due to induction fan repairs. These issues have been resolved, and the plant continues to serve as a peaking unit across the fleet. However, the outages did contribute to our inability to capture some upside as previously noted. Safety remains our first priority across the fleet, and our year-to-date recordable incident rate was 0.64. While higher than prior quarters, this remains well below the industry average. The commitment of the team to operate in a safe and reliable manner is an important part of Talen's value proposition. Now turning to the financial results on Slide 7. For the third quarter 2025, Talen reported adjusted EBITDA of $363 million and an adjusted free cash flow of $223 million. This quarter, our earnings include the higher 2025, 2026 PJM capacity pricing of approximately $270 per megawatt day and an increase in energy margin. Adjusted free cash flow includes higher CapEx associated with the extended Susquehanna refueling outage. Additionally, we also have higher solar energy pricing, which resulted in increase in generation across the fleet. Moving now to guidance on Slide 8. With three quarters behind us, we are narrowing our 2025 adjusted EBITDA as we are trending towards the low end of guidance, as mentioned at our Investor Day, due to the lack of volatility in prices in the third quarter and the extended outage at Susquehanna that offset our strong first half of 2025. Adjusted free cash flow remains near the middle of our original range, driven by our continued focus on generating the most cash flow per share as possible. We are affirming our 2026 guidance and remain confident in both our adjusted EBITDA and adjusted free cash flow numbers. All of this remains consistent with our Investor Day. Turning now to Slide 9. We remain committed to returning capital to shareholders. In September, we announced another upsizing of our share repurchase program, and we will have $2 billion of capacity remaining through year-end 2028 once we close on the acquisitions. We are supportive of targeting $500 million of annual share repurchases during the post-acquisition deleveraging period. Once we reach our targeted leverage of 3.5x or less, we intend to return to allocating 70% of adjusted free cash flow to shareholders on a significantly higher free cash flow base. Lastly, during the quarter, we sold nuclear PTCs for approximately $190 million. We were able to monetize the credits due to the additional benefits from tax reform implemented this summer, along with the tax benefits from the upcoming acquisitions, which will significantly reduce our cash tax burden for the next several years. The monetization is just another example of Talen's focus on producing bottom line cash flow. The liquidity addition from these sales provides us more options on our deleveraging activity, share repurchases and other strategic transactions. Turning to Slide 10. As of October 31, our forecasted 2025 year-end net leverage ratio is approximately 2.6x, well below our target. We will be focusing on debt paydown after the acquisitions to reach our targeted net leverage ratio by the end of 2026. And our pro forma net leverage is expected to remain below 3.5x by year-end 2026. With that, I'll hand the discussion back to Mac. Mark McFarland: Great. Thanks, Terry, and thanks for everyone for joining us on the call. We look forward to your questions. We'll turn it back to the operator, Michelle, and open the lines for questions. Operator: [Operator Instructions] And our first question is going to come from Angie Storozynski with Seaport. Agnieszka Storozynski: So my question is, as you said, Mac, every day, we seem to be getting announcements about new power deals, just not from IPPs, it seems. I mean we have conversions of Bitcoin miners, oil and gas companies are jumping in, companies that completely had nothing to do with power until yesterday. seemingly building new nooks and gas plants and yet we're still waiting for public and private IPPs to monetize their assets. So you're probably the last person I should push back against because you have been doing your share and some. But are you concerned that existing assets are losing the time to power benefit to the new build and those conversions? Mark McFarland: Angie, I appreciate the push actually. So no, we're not concerned. Look, we're going about our business, and we have been. As I said during some of the remarks there at the opening, we've continued to work to execute. I think that one of the things that we've done over time has learned a lot of commercial knowledge. We still think that's very applicable. We still think that we offer speed to market solutions. But I would note that these things are complicated. They will come. They just take time. And as I said during my comments, we want to do the right deals, and we want to do them on our time line and counterparties that we're working with time line to find the appropriate point by which to execute. That, to me, doesn't change the overall thesis nor does it change our thought process around this. It's just things take time. I mean if you think about it, we've gone from a behind the meter to -- we all know the history, but the behind-the-meter deal with the ISA being kind of thrown in the air, rejected and then being working to solve that and then we went to work on a commercial solution, moved it to the front of the meter, a lot of commercial learning there. We've always said we think that gas is the capability, a gas portfolio to be specific, not just single gas units that using a portfolio like we have the ability to backstop things in front of the meter type transactions that they're coming. And we continue to make progress. I mentioned, for example, and I'll let Cole jump in here in a second. But like we're advancing things. I mean you saw what's going on at the Montour site with the rezoning. We think that that's a good opportunity. We've described that in probably maybe too much detail over the past six months so that everybody wants to know when we're going to announce a deal there. But we're moving that forward in a positive fashion. we're going to get there. These things just take time. Cole? Cole Muller: Yes. I would just add that I think the deals that we've done, Angie, and continue to focus on our advantage from a speed to market, and we do provide an advantage there and probably on a different time frame than some of the deals that you're referring to being announced recently. And so we're really focused on those kind of deals that can get sites up and running and powered in the near term, like in our next year, 2-, 3-year window. And as Mac said, they're a little complicated, and we like to go for the gigawatt scale as well. And so it just takes some time, but we're pleased with where we're at and where we're progressing and where we're going. Agnieszka Storozynski: Good. And just one follow-up. Mac, you mentioned expansion of your portfolio. So I mean, I know that you have the 3.5x net debt-to-EBITDA leverage limit. I mean, is that a real limit? Or could you, for example, address it by, I don't know, securitization of the revenues that are coming from the Susquehanna contract, just being a little bit more creative to give yourself more of a balance sheet mom? Mark McFarland: Well, I'll let Terry jump in here after he kicks me on the table because I'm always telling that managing the balance sheet and credit is his problem, not mine. That's a joke, Angie, and for anybody on the credit side. Terry is now kicking me literally under the table. But the 3.5x, look, and I think we said this before and the way that we do capital allocation as well, the way we think about hedging and cash flow hedging and how that ties into making sure that we have appropriate cash flows, et cetera, all of that ties into our overall strategy. We set net leverage at 3.5x. We said that we're willing to toggle it. We are toggling it for a short period of time as we take on this new debt, as we close the Freedom and Guernsey acquisitions, but we've made a commitment to return to the 3.5x net leverage by the end of 2026. So we all pull on all those strengths. I think that when you looked at the appetite, and Terry mentioned that there was an appetite when we went through this financing for our paper, I think it was well subscribed. We got good rates that beat what we were anticipating, which is great to exceed that. And there is an ability to do things. But when it goes to the creative securitizations, I go back to -- and I'm going to let Terry jump in here and clean up this. But like doing the securitizations and doing project level financings and those types of things, we've made a concentrated -- concerted effort over the last several years to clean up the balance sheet taking out project-level debt, taking out sponsors, taking out other people at lower levels in the projects and put things on a corporate balance sheet, which allows us to manage across the portfolio. And we think that having a portfolio, having the commercial knowledge on how to structure long-dated large contracts, but having that portfolio and having that corporate debt at that level provides us the opportunity to backstop it across the entire fleet, not just a project finance type level entity that you get into when you start securitizing things. We have people -- and Terry can speak to this, but -- and Sergio as well, people come in and talk to us and want to put a contract over there with an asset over there and securitize it and offer debt in that form, but that has a different -- you start to having to quarter off credit. You have to start ordering off things as you deal with PJM. And all of those things to us don't make sense as much as having a portfolio that can provide long-term contracting solutions. Terry Nutt: Yes. Angie, this is Terry. Just to add on to Mac's comments, a couple of things. The 3.5x leverage ratio, it's a target. For the right opportunity with the right return, we would be willing to push past that. The other thing to elaborate on is as we think about serving our debt, serving our interest and just serving the operations of the business. As long as we've got contracted cash flows that have limited risk, we feel really comfortable around that. And this goes back to Mac's other comment is when we think about the balance sheet and we think about the leverage with respect to, okay, how are we hedged, how comfortable do we feel about those cash flows? And how does that sort of near-term outlook sort of all work together. And so we'll continue to do that. The other thing I'll add to it as well is as we've grown the business and as we've added on the initial AWS transaction and the second one, and then hopefully, here in short order, the Freedom and Guernsey assets, we're growing the earnings base. We're growing the cash flow base, which obviously has resonated with the credit market. And so when I got here 2.5 years ago, we had just issued some senior secured notes at like [ 8.625% ]. And here, we just get off the back of issuing two sets of unsecured notes that have a 6 handle on the interest rate. And so our cost of debt is going down in recognition of how well the business is performing and how we're growing. So we think those things are all positive. They give us a lot of options as we think about growing the business, and we'll utilize it as we move forward. Mark McFarland: And that balance sheet just gets stronger over time as we grow into the contracted aspect as the ramp ramps up with the existing AWS contract stand-alone. But as we add more contracts to that, right, it's going to further strengthen the balance sheet and provide for visible visibility to those cash flows. So maybe later, but not now. I think we like the position we're in and -- it gives us the flexibility to toggle things for short periods of time and then get back to our net leverage target of 3.5x net debt to EBITDA. Operator: And the next question comes from Shar Pourreza with Wells Fargo. Shahriar Pourreza: So, Mac, just in Maryland, there's obviously a vocal IPP around supporting solutions to add incremental capacity in the state's expedited CPCN solicitation process. I guess what's your thoughts around offering up alternatives and maybe again, your view on the construct in that state and then you can kind of be supportive of RA efforts there? Mark McFarland: Yes. Thanks, Shar. Look, first, I'd say we're actually doing our part through the RMR. Those are units that were slated to shut down under basically an agreement with the environmental firms, et cetera. And so we've worked hard to execute those RMRs. We are looking at would it make sense to get more gas to that site and prolong and convert. But you got to be able to get gas to that site, and we're working with the local utility, but that's going to take some time. I think that -- but where we have assets and where we're located there, it probably doesn't lend to sort of redevelopment in the size that you could do further on the eastern side of the Bay, which is over towards Chalk and that area, Chalk Point, where there's a couple of CCGTs, there's open land, et cetera. And getting gas across the river or the Lower Bay or Upper Bay, however you want to talk about it, is -- that's a difficult proposition. So, but we're working to try to get incremental gas there to see if we can take that coal unit and convert it like we did convert Brandon like we did at Montour and as we have done and we have the ability to do at Brunner. Look, if there was an ability to figure something else out, we'd look at it. But right now, that's how we see us contributing to Maryland. Shahriar Pourreza: Got it. Okay. That's perfect. And then just lastly, shifting gears to Pennsylvania. I guess, Mac, what do you need to see to build there? I mean, have you had any discussions with the utilities on their views of resource adequacy solution? And is there a common ground there that you can strike? It just seems like when you're hearing from Exelon and PPL, there's discussions to be had, but I just want to get a sense from you where the bid ask is there. Mark McFarland: Sure. Well, first of all, there's the whole [indiscernible] that's going on about how do we solve that, and we've been active in that, and we've got a couple of things that we're working up is to provide solutions there. We worked up a proposal with a consortium that included a couple of hyperscalers as well as some other IPPs and trying to be constructive there. I think the real issue is that we are concerned about the so-called rate shock of capacity prices going to $330 in this last clear and $270 before, but those prices do not support new build. If you look at any of the economic analysis done as part of the quadrennial review, it's $500 a megawatt day, okay? And then you get into the debate of will one capacity clear incentivize that build. We think that there needs to be some structural changes to provide a longer-term perspective there for new build. There is talk about building in rate base, but it's always done if there's the right contract or the right ability or the right returns, and even if you do that, it's at $2,500 a kW. And if you -- even though the energy curves have ticked up and the capacity markets have moved up, they do not equate to what is necessary for a new build CCGT. We actually think that CCGTs are a solution that are needed in the future when overall energy demand rises, but there's plenty of energy on the grid. We can run mid-merit and peaking units more. We're setting our units up to do that. We mentioned Martins Creek, and we're running them harder and have less time for maintenance offline, et cetera. And we're making adjustments in CapEx and O&M, as Terry mentioned earlier in the remarks, those can sop up a lot of energy demand. But it goes back to solving the 50 to 100 hours a year of capacity that needs to be solved. And we just think that, that is -- lends itself better to things like batteries or peakers rather than CCGTs and at lower overall cost and should be utilized. But to do those, a lot of people are sitting around thinking, okay, well, if we're not there yet, then and it's easy for us to say, right? We'll do something if someone provides us the right level of return for the investment over a long-term contract. Well, that's true, too, but the energy and capacity markets aren't there yet. But I do think you're going to see them get there over the next period of time, year two, but it's going to be solved by something other than CCGTs because it's just a speed to market thing. You cannot get a CCGT built by this time. And the question that preceded you here talked about all these other solutions. Well, all of those other solutions are high-cost solutions that people are not grasping at, but they're proposing but they're very high-cost solutions because of the technology that's being used, but people are looking at it as a speed to market. And so we need to get CCGT goings in the long term, but we've got to solve this 50 to 100 hours in the near term. And we just think that we're going to be able to participate in that by adding to our fleet and peakers batteries if we can get the right return mechanisms or if we can integrate it right with contracts, things of that nature. So I hope that answers your question, Shar. Shahriar Pourreza: It does. It does. Yes, there's obviously some more wood to chop there, but I appreciate it. Operator: And our next question will come from Bill Appicelli with UBS. William Appicelli: Just wanted to build upon some comments you just made there. You mentioned earlier about energy prices moving up. What are your thoughts on what's driving that? And where can that go, right? I mean if you discuss what you just mentioned there around the mid-merit and the peakers running more, right? I mean that's going to drive up the marginal cost on the energy side a bit. So I mean, is it driving to the upper $80s, $90 in terms of cost of new entry on an energy level? Or how do we think about sort of what the backdrop is for the wholesale power markets? Mark McFarland: Yes. Good question. Let's see if I cannot mix metrics here. Look, on a megawatt hour basis all in, I think you're looking at 120 plus for CCGT on a greenfield development and you're looking at a 2030 plus delivery time frame of COD. I do think that you can find ways to add so-called additionality to the grid that are cheaper than that and quicker than that. And those -- I've already mentioned that. I do think that -- and to your point, and this is a little bit about what Chris mentioned when he talked about the curve and the recent phenomenon of going up the curve, some of that's gas driven a little bit, but some of it's also people looking at it and saying sparks are expanding because you're getting to higher cost units filling the energy demand. This overall energy demand is going up. So energy prices should go up. We -- as Chris said, we've been waiting to see that and people often ask us. And even until recently, I mean, if you look at that chart that Chris was talking about, it's only been like the last three weeks that this thing has gotten a bid. And -- but we were anticipating that it was going to go there. We set the portfolio up on that to think about when we go in and layer cash flow hedges. Obviously, there's some timing that you can apply there, but there's also, as Terry mentioned, managing the cash flow hedges to protect the downside. as we look at security for having cash flows for debt service, et cetera, share buybacks, all the like. So we do think that energy markets are going to go up. I don't know if it's 80, 85, but we're starting to see on-peaks go up. And quite frankly, for the first time in a decade, we're starting to see summer on peak start to beat winter on peak. And that hasn't been a phenomenon for a decade in PJM. And as I think Terry mentioned the third and fourth highest peak days in June that we've seen. So a lot of this stuff is starting to manifest itself. I think the tip of the iceberg was the 270 and then the 330, and that's the capacity market because it's further out in time. But now you're starting to see it in the '26 and '27 forwards. And we just think that, that thesis is continuing. Terry Nutt: Yes. And maybe, Bill, to add to Mac's comments, really your second part of your question, I think what you're seeing in the forwards is really driven by what we're seeing in the fundamentals, right? We've seen this demand growth. We've gone, I mean, effectively a decade with sort of flat to no growth in the PJM market from a load standpoint. And now we're starting to see tangible load growth on a year-over-year basis, and that expectation is going to continue. I think the recent peaks that we hit during the summer are other good indicators of it. And then also just people rolling forward and actually really thinking about how they're going to handle their wholesale power cost in '27 and '28 and beyond. So we've seen more activity in the market. We do think it's fundamental based, and we think it's constructive. And to Max's earlier point, to get to the level of value to where you can build a CCGT or anything else, right, the devil is in the details of what is that total cost and then what return are you solving for. But we're still far away from that point. To Mac's comment, right, we think that, that number is well over $100 per megawatt. And so we've got quite a bit of ways to go before we can hit that point. William Appicelli: Okay. All right. No, that's very helpful. And then as far as additional asset acquisitions or can you just speak to what's out there? And are there things that you would still consider folding into the portfolio at this point when you kind of are making the evaluations around capital allocation? Terry Nutt: Well, I think on that, we'll continue what we always say is, obviously, we're always in the market looking for things. When we find something that we like and we think fits where we want to go, we'll definitely let the market know about it. As you've seen, generally, right, there's still a lot of M&A activity in the space. It varies from one asset to small portfolios. Obviously, there's been several larger M&A deals done this year across the IPP space. But still a lot of activity. I think there's still a lot of holders of assets that have held them for a while that are probably in a spot where they're looking for an exit. And then obviously, you've seen Talen and others engage from a buyer standpoint. So, still active, still looking at things as they come around across our desk. And as we get to a place where we find something, we'll talk about it then. Operator: And the next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to pivot to battery storage, if we could. And wondering if you could talk a bit about why you chose the partner you chose. And do you have any thoughts specifically on long-duration energy storage for AI data center applications? Mark McFarland: Yes. Look, first of all, we're working with EOS and looking at the deployment there. And there's something that we talk about long duration, which obviously the technology provides for long duration, but it also can be discharged for 4 hours, can be discharged for up to 12 hours. You can go across that spectrum and you can dispatch it over time and reload the battery. And I think that, that is critical because managing load that helps in managing load. And when we think about batteries, we kind of think of them as net load, if you will, which is reducing peaks, which goes back to the 50 to 100 hours, and can you do that across time. So we think that there's a good match up there. I will also tell you that because of the technology that EOS uses, it has a distinct advantage in that the fire protection needed is not the same as lithium-ion or other batteries. And so because of the technology doesn't have the same components and doesn't need that, that allows them from a -- and I think Cole can probably expand on this. But as we think about load and we talk about colocation, but I want to talk about just like colocation relative to the grid, being able to have batteries next to data centers or next to a nuclear unit or next to one of our other generating units, you don't want to have to worry about fires there and that associated. So it has that incremental advantage as well as the advantage of being able to match up on a time duration at different intervals. Obviously, efficiencies go down depending upon what you choose, et cetera. But those are the two benefits I see. And then the ability -- again, that goes back to colocation. I don't know if there's anything you wanted to add there, Cole. Cole Muller: I think it's an interesting technology and opportunity for us that we're exploring and better understanding the value that the battery solution may provide to data centers is something that is certainly core to why we want to kind of proceed with some kind of partnership like -- and so we're exploring it and having discussions around what that value stream is. And as those solutions present themselves, I'm sure we'll be kind of talking more about that. Jeremy Tonet: Got it. And just wanted to pick up, I guess, with the forward curve moving up a bit here, as you touched on before. I'm just wondering, granted it's recent, the moves you're talking about here, has that started to, I guess, filter into conversations on long-term contracts, just these upward moves, has that changed anything in conversations? Mark McFarland: Power is not getting any cheaper. So I think it informs things. But when we think about long-term contracts, I'm looking at Cole here to jump in. We're thinking about things over the long term. And we like matching that load over the long term, as Cole said, in the gigawatt size and the large size over time. And when you think about long-term contracts, the markets have gone up, they've gone down, et cetera. We like the ability to take our assets, contract them provide the appropriate level of return, reduce risk, therefore, we would contend would generate effectively the ability to have a lower free cash flow yield because it's lower risk and higher valuation. And that's the Talen flywheel that we're trying to implement. But... Cole Muller: Yes. And I think as energy prices go up, it informs us on the terms, not just the pricing, but the overall terms, as Mac is talking about of any future deals. And also, I'm sure, informs the counterparties on what their views are and what term and pricing and risk and so forth. So, look, I mean, I think as Mac said, we're going to do deals on our time line. And I think as power prices are continuing to push higher, it continues to give us conviction that we're going to look at the right deals in size and pricing and all the terms. And there's no need to go rush to contract, but obviously do them prudently at the right time. Mark McFarland: And -- but I also think I would just add that you can't see -- there's no visible curve for 10 years, whether capacity or energy. And so we're sitting back thinking about what is appropriate returns how do we think about counterparty, how do we think about gas? How do we think about backstopping with the portfolio as I manage, -- all those different things get into that. And then what does that do to our credit ability that Terry was talking about earlier in managing our leverage ratio. There was a question earlier about could you do different things with your balance sheet. As you grow into having a higher contracted portfolio over time, you could certainly do different things, but we're just not there yet. But we think that this is an overall -- we've got to embed the right risk and the right premium for taking these longer-term views and the counterparty has to do the same thing, as Cole was saying, and then it just takes two to tango. Operator: And our next question will come from Steve Fleishman with Wolfe Research. Steven Fleishman: Maybe following Angie's initial question, just in terms of the customer interest, how much is kind of the desire for additionality in any way impacting demand for more contracts for you? And do you see likely -- I mean, the Sus deal had potentially adding SMRs? And do you see some type of new investment likely being part of any deals that you do? Mark McFarland: Steve, it's Mac. Team can jump in. Look, I definitely think that the so-called additionality, I'm not even sure that there's a standardized definition of that, but incremental megawatts to serve incremental load is kind of how I'm going to frame it. But I do think that over time, we're not out of energy right now. We're actually not capacity short. Markets are clearing at the administrative caps and the things, and we clear closer to the real caps if left uncapped. But we're starting to get to the point, and these are in the out years of needing megawatts, but there's also the ramp of data centers over time. And the two of those things at some point, you're going to have to say, all right, how do we make sure -- and it's the so-called BYOP or BYOG, bring your own power, bring your own generation, et cetera. Those things are going to intersect later in the decade. And we're supportive of thinking about how do we solve that in a market construct in our contracting strategies, et cetera. It just hasn't ripened yet. I think that there's just been a lot of talk about it. I think there's a lot of people out there with a lot of solutions trying to bring -- offering power without saying we can do certain things, but there's no offtakes associated with those yet. That just hasn't ripened. I don't think -- and Cole can jump in here, but I don't think the demand or the desire for quickly to connect power or to have power towards the end of the decade is changing. It's just how do you solve that. And we're actively thinking about that. Cole Muller: Yes. And I would just say that the data center hyperscalers and everyone in the data center build-out space is really thinking about the problem in multiple, I guess, lanes. As Mac talked about before, different phases of power and there's like the near, medium and longer term. I think the medium and long term, yes, hyperscalers are looking at how do they add megawatts to this -- to the grid as they ramp up. But they're also very, very focused on the near term, 2026, 2027, 2028. And so we see them still being very active in getting existing power and connecting to existing power -- and that's really, as I said earlier, where we're focused on. And then if there's an ability to also participate in a longer-term solution, as we've talked about in previous settings around SMRs or new build, as Terry was talking about earlier, having those conversations and exploring that as well. But to me, it's -- they're still very focused now on getting power as you saw, I'm sure hyperscaler CEOs talking about doubling their capacity by 2027 from 2025, right? And the only way to do that is through existing power on the grid. And so they're -- from our -- all of our conversations, very, very interested still. Steven Fleishman: Okay. And then PPL also reported today, and I mean, their high probability gigawatts of data center demand by the end of the decade, I mean it's like a double or triple of their current peak. And so I'm curious just maybe Chris could talk to, just are you seeing all the zonal discounts that you historically had in there kind of start going away yet in the forward curve? Is it -- does at some point, this actually kind of flip maybe even to a premium? Or just I'm curious what you're seeing there. Mark McFarland: Yes. Steve, it's Mac. I'll take this. We lost Chris, unfortunately, due to some conflict here. But that, Steve, is something that is the next evolution of what we think is going to happen. But if you think about ramp rates and et cetera, and where generation is on the grid today and the basis differential, I think what you're asking, if I'm understanding correctly, is like PPL zone versus West Hub because PPL zone trades at a discount. Well, over time, as you build load there, you start to sort of soak up the incremental megawatts there and you move the East-West interface west. And so therefore, you get closer to the West Hub. And so therefore, it starts to close that differential. But that's probably not a necessarily near-term phenomenon until these things get ramped up. So if you think about our Susquehanna 1920, that ramps full ramp is 2031, '32. So we're four or five years from that. So there's no -- Steve, there's no way for us to go out and test the market, but I don't know that we would -- I think we would be in 2032, thinking that PPL should be a lot flatter to West Hub in that time frame. Terry Nutt: And Steve, maybe just to add to Mac's comments, that basis market historically, especially in the term, the term will react if there's large transmission projects and there's transmission projects that are being executed and built upon. But excluding that or excluding those projects that are out there and getting those completed, it does have a bit more of a recency bias of, okay, how is it showing up in the real time? How is that basis showing up as load comes in. And so as we see more of that as the load comes into the PPL zone, I think that will inform the term market a little bit more. And then you'll start seeing a change with respect to that. But it's a little bit more of a nuanced market and the fact that it trades off of fundamentals around transmission and then just what sort of a more recency bias, if you will. Steven Fleishman: And then just one last quick one. The Martins Creek issue this quarter, and you mentioned you're just running these peakers harder. Just are you looking at needing to ramp up capital spending at all to do anything to those units for next year? Mark McFarland: Yes, and it was included in what we put into our guidance. And -- but we're also thinking about, Steve, it's sort of this thing -- you've been doing this and covering it I guess as long as I've been doing it, too. But like the -- as power markets come off, you have to start to curtail capital plans and think about the way that the plant gets dispatched. When you go in the reverse direction, you have to do the same thing. We put more capital into '25. We're putting more into '26. But what we're also noticing, and I mentioned this is not only do we -- are we getting extended run times and extended dispatch, if you will, of the peakers, Montour, in particular, Martins Creek, et cetera, that Martins Creek was less than 4% type capacity factor for a couple of years ago and now is running teens. And so -- but what's going on is, in the past, we always had the ability to take the unit offline okay, and had an extended period offline by which we could do maintenance. Now we're seeing that, okay, it's running, it's running for extended duration periods of time, and we don't have to do that. So it's not just the capital that goes in. It's actually how you think about maintenance and maintaining the units during that. That is definitely true. That is not the issue that it had at Martin Creek. We just had a particular ID fan that had some bearing sets that took a while to get, but we just didn't have that downtime by which to recapture, get that ID fan done and get it back in there. And it was just -- it was something we're always fairly -- not fairly, I think we're transparent with respect to giving you some color as to what happened, and that's what happened. And -- but we're excited about, quite frankly. I mean, if you look at it overall, the idea, and it's something that we've been talking about, and it goes back to why are we seeing forwards tick up and why didn't we see them before? I don't know. But why are we seeing them now? It's because we're going further up on the dispatch curve. during most -- every hour is now getting further and further up on the dispatch curve, which means you're going to be up with higher heat rate units. And so we're seeing that manifest itself across our fleet. Operator: And our next question will come from Nicholas Campanella with Barclays. Nicholas Campanella: So just on the commentary about Amazon doubling their overall capacity by '27, that's their number. But just can you talk to the AWS ramp? Obviously, like that data point is supportive, but just any indication that they could be ramping power draw sooner than expected? Any data points on the ground level that you can kind of point to? Terry Nutt: Yes. So Nick, maybe just to touch on that and then I have Cole chime in on this as well. As Mac mentioned in the opening remarks, obviously, the data center is powered, it's energized. They're taking electrons and moving forward. The construction of the site continues in earnest, significant amount of work done over the past several months, and they continue to push forward. Obviously, we don't want to get into too much detail around what their ramp is like and what they're doing from a confidentiality standpoint. But we're fairly comfortable with how they're pushing forward. Cole, do you want to add anything? Cole Muller: Yes. I would just kind of reiterate what we've talked about before and continued progress. There's multiple buildings being built on top of the building that we sold to them additional ground prep, again, anyone who drives by can see all the activity. And just one point to remind folks that we talked about back in June is we transferred the old Nautilus buildings that can take up to 200 megawatts over to Amazon. Now what they do with that, that's, again, for them to speak to. But we're fairly -- we see a lot of signs that acceleration is going to continue and that they'll accelerate faster than the ramps we put out in June. Nicholas Campanella: Awesome. And then just one cleanup question just with the acquisition. I just hear you -- I hear you in prepared you're working constructively with the DOJ, could target closing sooner than 1Q '26 now, but '26 guidance assumes January 1 close. So just talk to the conservatism in that '26 number at this point and your ability to just kind of maintain that range if that gets pushed out. Mark McFarland: Yes. So look, there's a lot of moving pieces to a guidance range, right? Forwards are up. We've got -- that's within the range of what we provide. We've got potential for -- as we stated, this might slip into the Q1. We're still hopeful that we're working hard to get it done this year, and we'll see what happens. And as we get closer to that time frame, we'll provide updates on that. But we're just we're not at a point that suggests to us that we should change that range right now. So as we get closer there, we'll give you an update. Operator: And then our next question will come from David Arcaro with Morgan Stanley. David Arcaro: I was just curious maybe where are we in terms of economics for battery storage in PJM, just thinking about that EOS partnership. And wondering if you could characterize how you're seeing that opportunity across your fleet if you were to add battery storage. Mark McFarland: Yes. We're not quite there, David, and sorry for using your name. Look, I think that -- we're not quite there and ready to get into that. I think we're in the early days. But as we look at the economics and look at the capital build and as the cost of batteries come down and their ability to basically think about -- and it goes back to, I'll call it, load balancing for all practical purposes, you could think of it as supply balancing, which is we've got a lot of incremental megawatts that can be run most of the hours except the peak. So why not use those to charge batteries and then discharge them during the peak. And we think that, that can become a more economic piece over time. Obviously, batteries need to continue to evolve, bring their capital cost down and then bring their optimization methodologies into play. And we think that, that works well when you think about how do you take a load that is, for the most part, a base load, and I'm talking about data centers and then think about how do you clip some of the peaks of that -- and then all you're doing is all using all the rest of the hours other than the 50 to 100. So we think it's going to show some promise, but we're on the early days of getting through the economic model. So it's just -- David, it's just too soon. Operator: And the next question will come from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Look, let me clean up a couple of things here. One, on buybacks. I noticed there wasn't much activity this quarter. Do you want to speak to that real quickly? And perhaps more relevant, again, you're going to laugh here, Mac, but MNPI, anything to talk to on that front? Is there any twist there that's relevant? Terry Nutt: Yes. So, Julien, with respect to the buybacks, obviously, we were fairly active during the quarter with the Freedom and Guernsey acquisition and then also getting ready for earnings and financing. So that really drove sort of the buybacks with respect to Q3, working hard to get those acquisitions done and announced and out there and then working on our Investor Day materials as well. So that was a big driver of where we stood on buybacks in Q3. Julien Dumoulin-Smith: Okay. Sorry, you guys did do buybacks in Q3. That's what I was confused by. Cole Muller: No, we did not. Mark McFarland: We did not. And that's -- you can see that we didn't disclose it, obviously, Jordan. As Terry said, there's a lot going on during the quarter. And whether that's MNPI or getting ready for financings and blackout periods with the results and then closing Freedom and signing and Guernsey. Yes, it's just -- you can call that -- we'll talk about MNPI in arrears, maybe, and that would -- that precluded -- had a large preclusion across the quarter, so... Julien Dumoulin-Smith: Absolutely. A couple of cleanup items. Is there any chance that you accelerate this Sus deal with AWS and then clean up the remainder of the uncontracted Sus here? I mean I just want to come back to that concept. I mean you talked about the ramp-up to [ 31 32 ]. Everyone is grappling to get this stuff faster. In theory, this is a question of execution, right, to get it done faster with you guys. Can you speak to that a little bit on the ability to ramp it up? Mark McFarland: Look, anecdotally, we speak about desires with respect to Amazon. With respect to the contract, we actually want to maintain confidentiality with our counterparty there. We can speak anecdotally about them speeding things up. We said it's a lever that can be pulled. We stand ready to deliver 19, 20 megawatts whenever they want to take it. That was the obligation that we said. And if you just think about where people are going in speed to market, when you have a site that you're building at and you have the megawatts that are ready to go, that -- there's nothing more than speed to market than that. And that's about all we can talk about because we're not going to speak for Amazon. You'd have to talk to them, but we're excited about the possibility for them to ramp up. And if they did, we're willing and able to serve. Julien Dumoulin-Smith: Excellent. All right. No, fair enough. I appreciate that. And then lastly, just would you be in a position to get another gas contract here prior to the close of these acquisitions? Or would you tie those two together to the extent to which you get the acquisition gets kicked out in 1Q? Mark McFarland: Look, I think -- well, you've written about this, frankly. So it's a good thing to have a discussion. I think that when we thought about this, and let's step back before Freedom and Guernsey. Before we had the announcement of Freedom and Guernsey, we were already talking about working on the next deal. And that was even before we revamped the 1920 front of the meter, and that's just a continuation of the process. And that's why when we looked at it, we were talking about we have Montour, we have Martins Creek, we still have 300 megawatts available there. So I don't see the intersection of those two as reality. Obviously, what happens with the Freedom & Guernsey acquisition is if we do a deal, we would eat into that amount of megawatts that we currently have and therefore, Freedom and Guernsey reloads the bank. So that's how we view it. Operator: That concludes our allotted time for questions. I would now like to turn the call back over to Mac for closing remarks. Mark McFarland: Yes. So, thank you, Michelle, and thanks, everyone, for joining us and for the Q&A period. We tried to spend some extra time, and I know there's a couple of people still in the queue that we didn't get to. We're happy to take your questions and look forward to seeing everybody in the balance of this year and early next year with a busy schedule on the road at conferences. And I appreciate everybody's interest in Talen, and we look forward to continuing to execute. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and welcome to the Accuray First Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Steve Monroe, Vice President of Corporate Financial Planning and Analysis. Please go ahead. Stephen Monroe: Thank you, and good afternoon, everyone. Welcome to Accuray's conference call to review financial results for the first quarter of fiscal year 2026, which ended September 30, 2025. During our call this afternoon, management will review recent corporate developments. Joining us on today's call are Steve LaNeve, Accuray's President and Chief Executive Officer; and Ali Pervaiz, Accuray's Chief Financial Officer. Before we begin, I would like to remind you that our call today includes forward-looking statements. Actual results may differ materially from those contemplated or implied by these forward-looking statements. Factors that could cause these results to differ materially are outlined in the press release we just issued after the market closed this afternoon as well as in our filings with the Securities and Exchange Commission. We base the forward-looking statements on this call on the information available to us as of today's date. We assume no obligation to update any forward-looking statements as a result of new information or future events, except to the extent required by applicable securities laws. Accordingly, you should not put undue reliance on any forward-looking statements. A few housekeeping items for today's call. All references to a specific quarter in the prepared remarks are to our fiscal year quarters. For example, statements regarding our first quarter refer to our fiscal first quarter ended September 30, 2025. Additionally, there will be a supplemental slide deck to accompany this call, which you can access by going directly to Accuray's Investor Relations page at investors.accuray.com. With that, let me turn the call over to Accuray's Chief Executive Officer, Steve LaNeve. Steve? Stephen LaNeve: Thank you, Steve. Good afternoon, everyone, and thank you for joining us today. It's a privilege to address you on my first earnings call as Accuray's CEO. I want to begin by recognizing the remarkable dedication and expertise of the entire Accuray team whose commitment and innovative technologies have made a meaningful difference in patients' lives around the world. I have also genuinely appreciated the transition time that Suzanne is making for me as I onboard. Today, I'm excited to share why I chose to join Accuray and my high level of conviction in Accuray's success as we enter the next phase of transformational growth. Accuray is one of just a few companies operating at the intersection of technical sophistication and human impact. I have a tremendous amount of respect for what the Accuray radiation delivery systems can do to prolong life and for being indispensable in treating malignant and nonmalignant disease. I've spent my first several weeks at the company listening to and learning from many different stakeholders, and I continue to be incredibly impressed with Accuray's foundation and technology. This makes me more confident than ever about the potential to enhance our performance, market position and our long-term growth prospects. Here's why I have this belief. I've come to Accuray with over 40 years of global experience in med tech and biotech, including capital equipment and have held executive leadership and CEO roles at high-performing, well-differentiated and impactful publicly traded companies, including Roche Diagnostics, Becton Dickinson, Medtronic, ETEX, Bone Biologics Corporation and most recently at Globus Medical. The common thread across my experience was driving top line growth profitably while meaningfully improving patients' lives with innovative technology. This was achieved by creating clear strategic and financial goals, solid execution against these goals, consistently identifying avenues to optimize operations and grow margins and disciplined cost management. I am encouraged by what I've seen so far at Accuray, and I'm even more optimistic about the tremendous opportunities ahead. This is where our transformation plan comes in. Our immediate goal is to identify key strategic, operational and financial areas that we believe are necessary to position Accuray to compete more effectively, drive margin expansion, enhance organizational responsiveness and agility and ultimately position Accuray for sustainable, profitable growth. In short, continue to build a performance-based culture. As mentioned in our news release a couple of weeks ago, Steven Mayer, one of Accuray's Board members and our transformation Board sponsor will support us with this set of initiatives. Stephen brings extensive experience leading complex corporate transformations and will be instrumental in helping us to prioritize our resources, sharpen our focus and reinforce our culture of continuous improvement. The management team and I look forward to working closely with Stephen to execute on these goals. In the near term, as we implement key changes during the current fiscal year, we expect to reach a high single-digit adjusted EBITDA margin as a percentage of revenue on a run rate basis within 12 months. Furthermore, we are confident that our transformation efforts will enable us to expand our adjusted EBITDA margin as a percentage of revenue to double digits over the medium to long term and drive sustained and profitable growth for our company. We look forward to presenting more details on our transformation plan in early 2026, and we'll be updating you on the progress being made toward our goals on a regular cadence. I will now turn the call over to Ali to review the first quarter results. Ali? Ali Pervaiz: Thanks, Steve, and welcome to the Accuray team. We look forward to working closely with you as we execute on our transformation plan. Before discussing our financial highlights, I wanted to call out some major wins during the quarter. In September, we launched our Stellar product at ASTRO. This was more than a product debut. It was a statement. Stellar represents our commitment to adaptive radiotherapy and our belief that every patient deserves precision care. The reception at ASTRO was overwhelmingly positive, and we're already seeing strong interest from both existing and new customers. This is the kind of innovation that sets Accuray apart. Other highlights in the quarter include the announced signing of a memorandum of understanding with the University of Wisconsin School of Medicine and Public Health to advance online adaptive radiotherapy on the Accuray helical radiation treatment delivery platform. As part of the MOU, the 2 parties outlined their intent to collaborate on clinical research, education and training and adaptive technology development to help empower medical care teams to raise the bar in the personalization and precision of cancer care. Another highlight was the announcement of first patients treated in Melbourne, Australia using our CyberKnife system. Aligned with the Accuray mission to expand the curative power of radiation therapy, the recent treatment using a CyberKnife system fills an unmet cancer need in Australia to improve community access to this powerful technology while limiting the patients' need to travel long distances for care. Both these events provide further testament to the high level of interest and adoption of our technology, both in the U.S. as well as globally. Turning to the first quarter results. Net revenue for the first quarter was $94 million, which was down 7% versus the prior year and down 9% on a constant currency basis. As you know, due to the long sales cycle and relatively low unit volumes in the product side of our business, quarterly product revenues can be volatile. With that said, product revenue for the first quarter was $37 million, which was below expectations, mainly due to slower performance in our EIMEA and China regions. Year-over-year product revenue was down 23% and down 24% on a constant currency basis. On the other hand, as you know, our installed base generates a relatively predictable, higher-margin, valuable revenue stream, which continues to grow and which we intend to emphasize strategically. Service revenue was again a highlight of the quarter with revenue of $57 million, up 7% from the prior year and up 4% on a constant currency basis. This increase was driven by contract revenue growth of 10% year-over-year, which was higher than our installed base growth of 2% over the same period, illustrating that our pricing actions are taking effect. Product orders for the first quarter were approximately $40 million and represented a book-to-bill ratio of 1.1 with a trailing 12-month ratio of 1.2. Gross orders were also lower than our expectations for the first quarter, which was largely due to timing of receipt of customer orders for certain projects in China and the Americas regions. We ended the first quarter with a reported order backlog of approximately $396 million, defined as orders that are younger than 30 months. This represents over 18 months of product revenue, giving us strong visibility and confidence in future revenue conversion. As part of our diligence in ensuring a high-quality backlog, we canceled 1 unit representing approximately $2 million of orders to maintain a high-quality backlog. Our overall gross margin for the quarter was 28.3% compared to 33.9% in the prior year. This decline was primarily driven by product gross margins, which were 20.3% compared to 32.9% in the prior year. The key elements that unfavorably impacted product gross margins were sales mix, both geographical and by product of $2.9 million or 7.8 points, incremental costs associated with the tariffs announced earlier this year of $1.1 million or 3 points and a onetime obsolescence charge associated with aged inventory of $0.7 million or 1.7 points. Service gross margins were 33.5%, 1.4 points lower than the prior year, primarily driven by lower parts consumption in Q1 of fiscal year '25 due to a supplier credit obtained in that quarter. Overall, we continue to be focused on margin expansion in our service business driven by higher pricing and reducing our cost to serve. Operating expenses in the first quarter were $37.9 million compared to $36.6 million in the first quarter of the prior fiscal year. The increase was largely due to $3.3 million in restructuring and post-financing costs recorded within operating expenses this quarter. This was partially offset with $1 million of realized savings from restructuring actions. Operating loss for the quarter was $11.3 million compared to a loss of $2.1 million in the prior year. During the first quarter of fiscal 2026, we also had some onetime items that impacted financial results during this period. The company initiated a restructuring plan aimed at reducing costs, aligning resources with strategic priorities and streamlining operations. This resulted in $2.8 million in restructuring charges, which included $1.5 million in severance-related costs and $1.3 million in consulting costs directly related to the restructuring plan. Adjusted EBITDA for the quarter was a loss of $4.1 million compared to an income of $3.1 million in the prior year. This was largely due to the product gross margin challenges discussed earlier. We described the reconciliation between GAAP net income and adjusted EBITDA in our earnings release issued today. Turning to the balance sheet. Total cash, cash equivalents and short-term restricted cash amounted to $64 million compared to $57 million at the end of last quarter, primarily due to the net decrease in primary working capital. Net accounts receivable were $54 million, down $29 million from the prior quarter due to lower revenues and collection of certain past due receivables. Our net inventory balance was $156 million, up $14 million from the prior quarter as we ramp up for increased manufacturing in the coming quarters. Turning to guidance. Although we have had a slower-than-anticipated start for the first fiscal quarter of fiscal year '26, we have confidence in our cross-functional teams to execute the plan we had set out in the beginning of the fiscal year. With that in mind, we are reiterating our fiscal year '26 guidance with revenue in the range of $471 million to $485 million and an adjusted EBITDA range of $31 million to $35 million. We plan to provide more details behind the new transformation plan, which is expected to meaningfully improve our adjusted EBITDA as a percentage of revenue on our fiscal Q2 earnings call. And with that, I'd like to hand the call back to Steve. Stephen LaNeve: Thank you, Ali. At this point, as Ali indicated, guidance is unchanged. However, in the next 90 days, I will have a better feel for the organization, the progress of the transformation initiative and the external market dynamics in order to make an assessment of revenue and adjusted EBITDA guidance for the fiscal year at that time. As I begin my tenure, I see the path to deliver the adjusted EBITDA guidance with increased earnings momentum going into FY '27, even with the ongoing geopolitical and macroeconomic uncertainties. In closing, I'm extremely excited to have joined Accuray at this critical time of transformation for the company. My underlying goal is to foster a performance-driven culture that pairs innovation with execution, strengthens operational discipline and drive sustainable, profitable growth while creating long-term value for the patients, providers and shareholders we serve. I will now turn it back over to the operator for Q&A. Operator: [Operator Instructions]. Our first question comes from Marie Thibault from BTIG. Marie Thibault: Nice to be working with you, Steve. Welcome. I wanted to start here on sort of a high level and understand what you're seeing out there in terms of the capital equipment purchasing environment, the ordering environment. You did talk a little bit about product revenue and some of the recognition, of course, but wanted to understand if you're seeing things get better, get worse, stabilize in the various regions on the ordering front. Ali Pervaiz: Marie, thanks so much for the question. That answer really varies by region. Obviously, this particular quarter, we did see a slowdown in EIMEA and in China, mainly due to some of the geopolitical and macro issues that we are starting to see ease up a little bit. The U.S., we feel okay about from an overall capital equipment standpoint. And then we continue to see growth in our APAC business. And so it really does vary by region. And so I think overall, we're still going to continue to work with our region teams to gain a better pulse in terms of how capital equipment is shaping up as we look into the rest of fiscal year '26. Marie Thibault: Okay. That's very helpful, Ali. And as part of that, I also wanted to ask on net orders. Certainly, a bigger difference between gross orders and net orders than we're used to seeing this quarter. Did some of that have to do -- I heard about the cancellation, but did some of that have to do with age-outs maybe related to China? Just any detail on that? Ali Pervaiz: We did have read outs, but I would say they weren't out of the [indiscernible]. And at the end of the day, I tend to focus more on gross orders because that truly is a representation of new business that's coming in. And so we reported new gross orders from across the globe of about $40 million, which was lower than expectation and primarily related to timing of customer receipts in both the Americas and in China. Marie Thibault: Okay. And if I may sneak in one other. Just wanted to hear the latest on kind of tariff mitigation efforts. I know that you have a number of initiatives to sort of offset some of that. So any progress or any updates on those? Ali Pervaiz: We continue to take a look at the duty drawback program, which is something that will allow us to at least regain tariffs that we've paid on any equipment that does not remain in the U.S. And so that is a program that is very active for us. We have in the past sort of spoken about implementation of a foreign trade zone, which is certainly something that we continue to take a look at to see does that make sense for us as this tariff environment is pretty fluid, but that is certainly something that is on the table as well. And so it's certainly is a pretty fluid situation, Marie, as you know, the headlines change quite frequently, but we keep a pretty close pulse on it. And so I think that's sort of what's happening from a tariff standpoint. Marie, I will take the opportunity because I know we did reiterate guidance this particular earnings call as well. I think it's important to highlight that we're really pleased with the continued growth in our service business, and we expect that to continue through the year. Product revenue was obviously slower than anticipated in Q1 due to what I highlighted in the prepared remarks in terms of slower performance in EIMEA in China. And we do expect that to continue in the second quarter. But with geopolitical macro issues starting to ease, we're confident that a lot of these orders that we will not deliver in the first half will actually shift into the second half based upon customer schedules and feedback that we've gotten from our teams on the ground as well as our JV partner in China. So with that, I think it's really important to highlight that we do expect first half revenue to be closer to about 40% of our full year guidance and the second half to be about 60% of our full year guidance because we are seeing some of these -- some of this product demand shift to the second half. Obviously, we're going to keep a close pulse on it to see if there's any other dynamics that happen from each of the different regions, but this is what we're seeing right now. Marie Thibault: That's really helpful, Ali. And I appreciate that, especially the 40-60 split, we'll make note of that. I know in the past, it's been 45-55. So certainly helpful to have that split now. If I could then maybe follow up with one more question just on the margin side. I heard the commentary about product and geography mix impacting product gross margins. It sounds like that should also continue into fiscal second quarter and then possibly improve in the second half. Is that the right way to think about that as well, Ali? Ali Pervaiz: I think that's the right way to think about it, Marie. We did have more deals that went into emerging markets that contributed to revenue in Q1. We expect something similar in Q2. And then as we start to execute on our backlog that has more for developed markets, those come with a better margin profile. I think at the end of the day, Marie, we've spoken about this in the past and which really we just want to be able to continue to make sure that we're getting our installed base to increase, and that's really going to help our service business grow. And you saw that as a highlight in terms of service grew by about 7% this quarter and contract revenue grew by about 10%. And so I feel really good about the way that our service business is positioned right now and moving forward. Operator: [Operator Instructions]. At this time, there are no more questions. This concludes our question-and-answer session. I would like to turn the conference back over to Steve LaNeve, President and CEO, for any closing remarks. Stephen LaNeve: Thank you all for joining our call today, and we look forward to speaking with you again in February when we report our fiscal 2026 second quarter earnings results. This concludes our earnings call. Thank you. Operator: The conference has now...
Tomás Lozano: Good morning, everyone. This is Tomas Lozano, Head of Investor Relations, Corporate Development, Financial Planning and ESG. Welcome to Grupo Financiero Banorte Third Quarter Earnings Call for 2025. Our CEO, Marcos Ramirez, will begin today's call by presenting the main results of the quarter and the first 9 months of the year and will comment on the strong results of our core business as well as extraordinary that impacted this quarter's results. Then Rafael Arana, our COO, will go over the financial highlights of the group, providing details on the margin evolution and sensitivity, asset quality and expenses and will cover the adjustments in the guidance to reflect Bineo's impairment and the group's operational strength. Please note that today's presentation may include forward-looking statements that are subject to risks and uncertainties, which may cause actual results to differ materially. On Page 2 of our conference call deck, you will find our full disclaimer regarding forward-looking statements. Thank you, Marcos, please, go ahead. José Marcos Ramírez Miguel: Thank you, Tomas. Good morning, everyone. Thank you for joining us today. Before starting our call, I'm proud to share with you that yesterday, we concluded our 125th anniversary celebrations, with a special Board meeting in Monterrey. We thank you for your patience as we had to move our official reporting dates to make this celebration special. We achieved 125 years of sharing with you, our shareholders, a transformational journey that has a lot to become one of the leading financial groups in the country. Your trust and support has been key as you have helped us to execute and embrace digital transformation, expand our business participation and reimagine the way we operate by placing our customers at the center. Moving on with our results, let me begin by highlighting that this was an overall strong quarter. Our core business continues to demonstrate the structural strength, supported by the solid performance across our business units, expanding margins and disciplined expense management. However, it was overshadowed by 2 extraordinary items that impacted our results. The first item has to do with the NIM. As you well know, we announced itself in September. Although this transaction is still awaiting regulatory authorizations, accounting standards require its classification as a discontinued operation with an initial valuation impairment of MXN 1.3 billion. Second, we recognized a new nonperforming case for the commercial portfolio with its corresponding impact on higher provisions and cost of risk for the quarter. It is important to highlight that, that is an isolated case and we do not expect any particular industry to be at risk. These extraordinary events do not reflect a weakening of the structural strength in our core business or operating trends. Additionally, our cost of risk outlook for the full year is not modified since the possibility of occurrence of such case was previously anticipated. We expect the positive trend in our quarterly results to continue during the fourth quarter, together with the usual seasonal dynamics that characterized the end of the year. Regarding the Mexican economy, our economic analysis team maintains its GDP growth forecast at 0.5% for 2025, driven mainly by Brazil [indiscernible] and signs of recovery in domestic consumption. Looking ahead to 2026, we anticipate a rebound in GDP growth to 1.8%, supported by a combination of factors expected to stimulate private construction and tourism, such as Mexico participation in the FIFA World Cup and the renewing momentum in key sectors such as investment in construction. On the fiscal front, the Mexican government expects to uphold fiscal consolidation efforts to 2025 to 2026, in line with the budget proposal recently submitted to Congress. Additionally, we foresee a continued constructive and collective dialogue between Mexico and the U.S. in the coming months, which could support the process of the USMCA scheduled for next year. Regarding monetary policy, we forecast 2 additional 25 basis cuts in the reference rate, bringing it to 7% at year-end. For next year, we expect 2 further reductions, with the rate reaching 6.5% in the first quarter and remaining stable throughout 2026. Finally, we expect a steady Mexican peso for the remainder of 2025 as the broad weakening of the U.S. dollar and the increased appetite for risk assets have favored the currency. As a result, our economic analysis team forecast MXN 18.80 per dollar by year-end. Now starting off with the financial results on Slide #3, we highlight the group's sound structural performance. Margin for both the group and the bank expanded in the quarter, supported by the neutralization of our balance sheet sensitivity. Cost of fund optimization has absorbed the impact of decline in rates in the loan portfolio, which also reflects the natural hedge of larger fixed rate loan balances. The overall expansion and composition of our credit portfolio continues to support revenue generation, driven by a resilient internal demand and the implementation of the hyper personalization strategy. Our capital generation remains strong, driving the capital adequacy ratio to 22.3% and creating opportunities for capital optimization. We will provide greater detail later in the presentation. As for the extraordinary items that I mentioned before, we see Bineo's impact. And regarding the risk metrics and increase in the NPL ratio to 1.4% and cost of risk reached 2.7%, reflecting the isolated case during the quarter. On Slide #4, net income for the third quarter decreased 11% sequentially and rose 1% with accumulated figures, mainly affected by both extraordinary items already discussed. Nevertheless, results still reflect a strong structural performance in our core businesses. ROE for the first 9 months reached 22.3%, in line with the full year guidance. Results by subsidiary on Slide 5, despite a minus 4% sequential decline in the bank's net income to MXN 11.3 billion, mainly affected by higher provisions that offset the dynamic consumer activities in core banking products and structural efficiency in margins. Consequently, ROE for the bank stood at 27% for the quarter. With accumulated figures, net income from the bank grew 2%, reaching MXN 34 billion. Despite higher provisions, the bank is playing a sound [indiscernible] and higher market-related income from heavier trading activity. The business was positively impacted by the neutralization of our balance sheet sensitivity to rates, supported by larger lending volumes along with the consistent optimization of our funding costs. Our banking operations still showing resilience on consumer dynamics and the positive impact of higher fees from the insurance company. Altogether, these results yielded an accumulated ROE of 28.4%, in line with the guidance. Our insurance business grew 20% during the first 9 months of the year, driven by higher billing issuance, mainly in the life sector. The overall positive evolution of the business is also capturing higher lending activity of auto loans and mortgages at the bank, which offset greater fees paid for the bancassurance operation. Annuities expanded 28% quarterly due to the higher business volume despite a greater competitive market. With accumulated figures, it grew 3% driven by a positive technical result on lower inflation adjusted reserves. In the brokerage sector, the quarterly decline was driven by lower evaluation in securities. However, the first 9-month expansion derived from increased fees due to higher trading operation and market-related gains. Lastly, results in the pension funds business were driven by higher yields on financial products in both comparison periods. On Slide #6, the loan portfolio, excluding the government book, grew 10% year-over-year, driven mainly by consumer lending. In the year, the commercial and corporate book grew 9% and 7%, respectively, still supported by short-term working capital financing, primarily in the tourism, real estate and industrial sectors. Deceleration in both portfolios is in line with our expectations for the year since customers in both segments continue to wait for trade clarity before committing to long-term investments. Moreover, these portfolios were further impacted by FX variations in the dollar book, which currently represents 40% of the total loan portfolio. On the other hand, our government portfolio declined 12% in the year, largely related to lower activity in the federal government and prepayments from states and municipalities. Nevertheless, we reiterate our appetite for the segment, and we anticipate a seasonally active fourth quarter. Turning to Slide #7. Consumer lending continues to drive overall loan growth. The 12% year-over-year expansion was supported by our ability to capture the disposable market with digital capabilities, process efficiencies and hyper personalized business model. In this sense, auto loans sustained stronger-than-expected annual growth, increasing 31%. This expansion was driven by our ongoing efforts with existing strategic alliances to improve our availability and the competitiveness of our offering within the partnership, and our capacity to gain market share by capturing business from competitors. The credit card portfolio rose 16% year-over-year, mainly supported by our resilience on private consumption, improved promotional efforts that derive in larger building balances, targeted marketing campaigns and the continued success of our rewards and loyalty programs with our existing customer base. Payroll loans grew 10% in the year, driven by an observed greater demand, process optimization and increased availability to digital channels. Moreover, we continue to enhance our value proposition with differentiated high liquid products designed to align with evolving customer needs. Finally, mortgages rose 8% in the year, supported by improved origination processes, strategic alliances and our hyper personalization strategy. On Slide #8, the structural asset quality continued to demonstrate solid performance across most of the products. However, as noted at the beginning of the call, our risk indicators reflect an isolated nonsystemic case with the commercial portfolio. I would like to insist that it does not indicate broader sectorial or geographical concerns nor a deterioration in our quality forecast. While the recovery outlook remains strong, such case resulted in elevated provision. In this sense, both NPL ratio and cost of risk rose in the quarter. However, we are still holding our cost of risk guidance range for the year between 1.8% and 2%. On Slide 9, net fees grew 1% quarter-over-quarter and remained relatively stable with accumulated figures. Sequential slowdown reflects lower transaction activity compared to a seasonally high second quarter. With accumulated figures, higher transaction volumes in consumer products and investment funds were offset by regular fees paid on credit origination to the external sales force. Moving on, on sustainability in the Slide #10. I would like to highlight that in line with the high growth rates of auto loans, a growing proportion of this portfolio is related to hybrid and electric vehicles. This supports growth in sustainable products such as Autoestrene Verde [indiscernible] auto loan product. Similarly, on the social front, our book in payroll clients demand stronger support from them through financial education workshops, which help our clients make better informed decisions when hiring the different financial products available to them. Lastly, the environmental front, we are very close for reaching our 2025 target of 226,000 planted trees across Mexico, in line with our commitment to One Trillion Trees organization. So as you can see, our core business and structural expense continue to have a sound evolution. In this sense, apart from Bineo consolidation impact of net income, we are maintaining or improving all of the other operational ratios in the guidance for 2025, being confident we will comply with our commitment to the market. Now before asking Rafa to cover the main financial results of the group and the updated guidance for the year, I would like to address our capital allocation plans. The bank's organic capital generation enabled us the possibility of an extraordinary dividend during the fourth quarter. Accordingly, we are having a shareholders' meeting in the upcoming days to seek approval and proceed with the distribution of around 35% of the net income of 2024, amounting MXN 6.99 per share by year-end. With this, our total payable ratio will reach 85%. With this, I conclude my remarks. And please Rafa, please go ahead. Rafael Victorio Arana de la Garza: Thank you. Thank you, Marcos. Now we move to the financial highlights. And I would like to address and thank you for all the feedback that you give us yesterday concerning the results and some of the questions that allows to really go directly into what's really of concern of what you saw in the numbers. Firstly, let's remember that when we set up the guidance for the loan growth, we were expecting a country that was supposed to grow at 0 GDP. And we set up a loan growth with the exception of the government book, very close to 10% or double-digit growth. I will go in a minute to show that, that's still very feasible for us, and we're still going to keep that on the guidance. But if we see a very strong consumer that continues to grow in a very good way for us, it's not the same on the corporate and the commercial. That is much more a wait-and-see mode for the country, even though we continue to provide working capital and some CapEx for the commercial and the corporate. But that -- I would say that's where you see less activity in the group. The government book is starting to move forward in the way that we always expected that by the end of the year, the government book was going to continue to be trending up based upon many initiatives that were on the making for the -- I would say, for 6, 7 months on the book. So even though there was some concern about that the commercial and corporate was not growing in the bank and that we are only becoming more a consumer bank, that's not exactly the case, and it's most related to what I mentioned about the economic activity that is very related to what's going to happen with the USMCA in the corporate and the commercial. If you look on the positive side, concerning the growth in the lending side, we basically captured market in car loans, payables, credit cards, mortgage books, a piece on the commercial and corporate, but we capture market on that part. Governments start to move. This is positive information. So you we'll see that. We have really started to move from 26.4% to 27.4%, and you will reflect that on the on the fourth quarter. So all on all what we see is that we continue to see very strong demand on the consumer side and very healthy demand on the consumer side and we will see the numbers in a minute. And what Marcos mentioned about this isolated case that was very not expected for us, we're working with that case for many months, but it was really not in our hands to sort it out. And Gerardo will explain that in a moment. So if we now move because what I don't want for the investors to see is that Banorte is starting to really slow down on that part. I think the third quarter is always the most difficult one, but you will see a very good pickup on the fourth quarter on the loan growth to achieve, but we guide the market to [indiscernible]. If you go to the slide that we're showing on NII, I think the key part is looking at the NII, especially on the -- what is loans and deposits. NII concerning loans and deposits is growing at a very healthy 15% on that part. So when you see another part on the NII, when you see the MXN 1.5 million that was really not expected to happen because it's related to the strength of the peso, that is causing us to lose on the net income, on the NII, MXN 1.5 billion that was not expected in any way when we set up the guidance. If the peso starts to go more in a trend to the 18, 19 something, you will see a recovery on that part. But NII, especially on the loans and deposits continue to be very healthy and growing in a nice way. So that's what I would like to result on that part. That expansion on the NII will continue also into the fourth quarter. Based upon all the cost of funds that we have, we will see in a minute how the spread of the book continues to expand based upon all the strategies that we set up on the on the balance sheet. So very reasonable NII in the loans and deposit, 15% year-on-year on that part, and a negative impact in the valorization from FX of MXN 1.5 billion that was really not expected where we set up at the beginning of the year. So if I move now to the next one, the bank NIM continues to expand in an important way. Now it's reaching 6.9% based upon all the strategy that we set up on the balance sheet. And that also has allowed us to compete in the market because by having the lowest cost of risk and NPLs, we can provide the market with very attractive prices if we like the risk. So we are very, very diligent on the risk. But based upon the spreads that we're getting on the group, we can really go for the clients and we like to have that at the bank. So I already discussed the NII. Bank net fees, some people are concerned about the bank net fees. Remember that out of this -- the third quarter is really a kind of a slow month on that. You will see a lot of activity in the fees in the coming next 3 months because of all the promotions and things that accompany the end of the year. We have a very -- I would say, we are very confident that fees will continue to expand. And remember that when you have to look at fees, since we are selling really cars and mortgages in a very important way, I mean we -- in parallel, we are basically the leader in the market and in the mortgage which we are seconding market but very close to the first one, is that you have to pay the dealers on the commission basis what you have with the dealer to the sellers with the sales force that we have and the same happens on the mortgage front. Then you absorb that through the life of the loans. So this is related to the very fast pace that we are growing the group in the mortgage book and in the car loans. And another important thing to mention is that we have 2 very large issuers that was a very important part of the fees that were running to us because of the very large number of transactions. But we decided based upon a very I would say, a profitability metric analysis that we did on those 2 clients, but it was not on the best for the bank to keep on sharing those because there was basically no money to be made on that. You will see that balancing out in the next quarter. So when I go to the next page and the sensitivity continues in the same way that we have been planned in the group. So the sensitivity on an NII basis is nothing and basically, and on the balance sheet on the peso route, this continues to be very, very, very low. On the dollar book, you see that's much more active balance sheet management, not in the same that was in the peso that you have a long way to really position the balance sheet. And the reason for that is that we don't have fixed rate loans on the dollar group. We have a lot of fixed rate books on the peso book that allow us to hedge the balance sheet in a natural way. In the next -- what you see, the bank's net income was basically affected by the -- what Marcos was already mentioned, but that's an extraordinary base that we had on the commercial side. The ROA of the bank continues to stay at 2.5%, and the ROE of the bank, including the loan that was mentioned before, stay at 27%. But in accumulative basis by the end of the year will be very, very in line with what we guide the market today. I will jump to the next one, and it's basically the graph about the managerial NIM, but you see the effect of the annuities and insurance on that part. You see now basically those 2 trending. So there's no -- the only thing that happened on the pension book was a slight effect on the URBI because of inflation that happened in the quarter. The most important part also in the next slide to see why we are confident that NIM will continue to expand and continue to deliver pretty good numbers on the margin side. You see that when you look at the graph, you see the active -- the rate that we are really having on balancing the active rate that is present in the market how we are dealing with the reduction of the fees. But you see, and also a very important part is the reduction that we are having on the funding side that you can see that on the red dotted line on the low part of the graph. And then you move into the next one that is -- no, no, no -- into the next one, that is really the spread. And the spread is 8.9%. And you see that, that spread continues to extend even though the rates continue to drop. And that spread will continue to move up through the remaining of the year and into the next year. So basically, what you saw -- you see in those graphs is that you see the portfolio continues to post pretty good numbers around 12.9%. You see a deep reduction on the active rate that is basically the lowering of the rates that the Central Bank is doing. But you see that the spread goes in the other way, and that's exactly what we plan the balance sheet to do so we started to position our balance sheet. So that will continue in the coming months. The next graph really shows the trend that we have on the funding cost and that graph will continue to grow in the coming months. As you know, basically, October, November and December are pretty rich months concerning the noninterest-bearing deposits, and we will continue to see that drop in the funding cost has stayed there for the remainder of the year and into the next year. There was a concern about -- on the funding side that it was like a drop on the interest-bearing deposits. That was a deliberate move because there was expensive funding that we were holding on the balance sheet and we don't need that anymore. So we got rid of those expensive funds, okay? And in the next graph, it is really what is creating Banorte being such steady on the NPS and cost of risk, it was kind of a surprise for the market and also for us, the big pickup that we have on the cost of risk is -- I think is mentioning that it's tough to keep the risk numbers the way we have been keeping for many, many months and years. And this is really an extraordinary pace. Gerardo will go in a minute to explain exactly what this case is posing. But what I would like to address is that we still hope that Marcos mentioned that we will, on our guidance, on the cost of risk from 1.8% to 2% on that part. And the write-off rate that you see continues to be quite steady on that. So this was the big pickup that we have in the third quarter. And another thing that you will see is that an addition MXN 400 million provisions were put also on the third quarter that those provisions will be reversed in the coming quarter because it was basically because of a calibration of the models from the credit cards that we are coming into -- before integrating the Tarjetas del Futuro, the Rappi integration with us. I will pass and then I will continue, but please Gerardo, you would like to address the case? Gerardo Salazar Viezca: Yes. Sure. Thank you. Good morning, everyone. I will say that the higher provisions recorded during the period is primarily attributable to a single isolated exposure within the commercial loan portfolio. The specific case required an additional reserve following a detailed credit review that considered updated financial information and collateral valuations. Importantly, this adjustment is not indicative of a broader portfolio trend. Comprehensive statistical and credit analytics confirm that the event is idiosyncratic and nonreplicable. The exposure in question has characteristics that differ materially from the rest of the portfolio. That is including sector, geography, obligor structure and collateral profile. And those does not share risk drivers or behavioral patterns with other loans. Portfolio level analysis support this conclusion. Let me explain 3 factors. The first factor is correlation test between the affected exposure and the rest of the commercial loan book show provisions statistically indistinguishable from 0, confirming the absence of common risk factors. Second, migration and delinquency rates across all other commercial cohorts remain stable and within historical norms. And third, vintage performance and profitability of default distributions exhibit no significant drift compared to prior quarters. Consequently, the increase in provision should be interpreted as a one-off technical adjustment, reflecting the institution's conservative provisioning framework rather than a signal of credit deterioration or a change in portfolio quality. This proactive approach strengthens coverage ratios and demonstrates the bank's commitment to prudent forward-looking risk management practices, ensuring portfolio resilience under diverse economic scenarios. Rafael Victorio Arana de la Garza: Thank you, Gerardo. If you've got more questions, we will address that during that. The other thing that we would like to touch, the next slide please, is -- when we commit to the market at the beginning of the year about the guidance, we said that we were going to push hard to go into single-digit numbers, the expansion on the ratio. As you can see on that part, we are very, very close to achieve that to reach lower cost expansion for the year and started to go back again to single digits. And from then, a continuous evolution into what we like our 34% cost-income ratio. This was a big step, and you will see that big drop also on the fourth quarter on the expense line. But we are right on target what we promised the market that we will be below 2-digit numbers into single-digit numbers. That's -- I think that's another part that we will discuss when I touch about the guidance. The next one goes with the capital. Marcos already announced and the distribution of the extraordinary dividend. And the reason for that, you can see easily on the quality of the capital and the size of the capital base, 14.8% is what we have and own on the core Tier 1. That number when we pay the dividend, will go for the first quarter close to the 12.5% and evolve here very close to the number that we would like to have, that is the 13% for Teir 1 ratio, fully compliant with TLAC. No issue with TLAC in any way. So capital continues to be a very strong generation of dividends for our investors, and we continue to hold a very prudent management on the capital base. Now I will move into the guidance to see what are the adjustments that we will have in [indiscernible]. The first one was loan growth. The new guidance that we are putting in the loan growth, the range is open because there's pipeline, but we have to go to make that pipeline a realistic one. But we think that without the government group, we're going to be very close to the double-digit number, if not above the 10% in double-digit numbers, but we have to see how the pipeline evolves on the remainder of the months. The pipeline looks strong, and I think we could achieve what we promised the market on that. Net interest margin for the group will be a bit -- a little bit above what we guide the market on the range. The NIM of the bank, for sure, will be very close to the 6.7%, 6.8%. The recurring expense growth that we were putting double-digit numbers is going to range from 9.4% to 9.7%. That put us on an efficiency ratio from 35.5% to 36.9%, trending to the number that we would like to have that is the 34%. Cost of risk will continue to hold the 1.9% to 2%. We feel confident about that. Tax rate, the same. The net income basically has been affected by Bineo. If you strip the Bineo number, the bank is exactly on guidance. And you have to consider that we were not taking into account MXN 1.5 billion of FX that happened to the bank that really affect the net income in the MXN 1.5 billion basis. So on the net income basis, basically, what you see is the effect of Bineo. And let me tell you this. There's a lot of initiatives trying to minimize this effect. But in order to try to be as close as we can be for the guidance by the end of the year and not promising that we will be on the guidance, but efforts are being made to be very close. We continue to see very good consumer, government is coming alive and also a pipeline on the dollar book is becoming quite effective. At the same time, we don't see any hiccups on the quality of the group on the consumer and no more in extraordinary cases under the commercial and corporate. Return on equity for the group will continue to go from 22% to 23%, up from 21.5% and the return on equity of the bank will be from 28% to 29%. The ROA will stay at 2.2% to 2.4%. So with this, this is the guidance that we have at this moment. But I would like to address the fact that important efforts are being made basis of the dynamic of the bank that we could really achieve a better number on the -- of the net income guidance by the end of the year that will be close to what we promised the market on that. With this, I conclude my remarks. Happy to jump on Q&A. Tomás Lozano: Thank you. We will now move to our Q&A session. As always, we kindly ask you to present only your most relevant question, and we will be happy to take any other questions any time after the call. [Operator Instructions] We are now ready to start our Q&A session. We'll start with Brian Flores from Citi. Brian Flores: [Foreign Language] I wanted to ask you on the proposed interchange rate caps for credit and debit cards. If you have any color on your conversations from the regulator, any, I don't know, initial gauging of impact that you could have I think it's probably going to become a very relevant discussion. So any color you can have on that would be really appreciated. José Marcos Ramírez Miguel: Thank you. Yes, we are aware of that. It's still moving, nothing is said about that. So we should wait. We have a meeting with the Ministry of Finance and [ one of the ] bank of Mexico, and we are waiting to start working and to move on, and we have some days ahead to maneuver and to see what's going on. So far, we don't have anything. And as soon as we know, we will let you know. But so far, we are -- it's a work in progress. And they open the doors, that's very important to negotiate and to hear from the [indiscernible] Mexico, what's going on. So we will see in, let's say, 1 month around that the conversations. I cannot tell the word because I don't know anymore. Tomás Lozano: Now we'll continue with Jorge Kuri from Morgan Stanley. Jorge Kuri: Congrats on the great results. I wanted to ask you about your market-related income. Just trying to figure out what -- what's the number going forward because it's evidently been a really big contributor to the profits this year. You're on track to basically double the amount of market-related income this year versus 2024. And if I just try to benchmark it in any way, the number really looks above trend. If you look at it as a percentage of revenues, it'll probably be around 6% this year versus a very consistent 3% over the last 3, 4 years. If I look at it as a yield on your marketable securities, that's around 1%, which is also exactly double of a very consistent 0.5% that it's been over the last 3 years. So can you walk us through what's behind this really big increase? And I guess most importantly, how sustainable that is as we look into 2026 and '27? José Marcos Ramírez Miguel: It's not sustainable, it was what it was because they saw an opportunity. The rates were going down, the effect was somehow it was clear to see what was going in the market. So we'll take the advantage. But I think, for the future, we are not depending on the trading for the bank. So if we see an opportunity, we will take it. But again, you will see for the next year, the budget is going to be a -- Boeing one, I don't how to say it, but it's going to be the same, but this month. And we do not expect to move the needle there too much. Rafa, do you want to say something? Rafael Victorio Arana de la Garza: Thank you, Jorge, for the question. And sorry that we cannot project this graph, but you will see that even though you see a big number on the trading book, if you compare that number to the expansion on the -- basically on the NII and compared to the expansion that we have on the technical results of insurance and annuities and also the impact of the net fees, the trading when you look on a percentage basis, continues to be basically the same trend. As Marcos mentioned, it was a very easy gain based upon the way we position the balance sheet and the acquisitions. But it's not that we are chasing or changing in any way the strategy on the trading book. But we are very, very -- I would say, very carefully looking at this is that the NII continues to expand much faster than this. The net interest -- NII also for the annuities and insurance continue to expand faster than that and also the fact of the net fees. If we see that this takes another trend compared to this today to what I mentioned about the NII and the fee, then that will make us to put into another strategy on the trading group that we are not really moving anything on the strategy. We will send this graph, I'm happy to put that on the web page for everybody to see that we take a very delicate balance about trading, NII of the insurance and the fee base. And yes, this was a very good part of the year, but also because the other also were not in an important one. Jorge Kuri: Can I just ask a clarification. Rafa, I think you mentioned there's going to be a reversal of loan loss provisions of MXN 400 million during the fourth quarter? Did I understand that correctly? Rafael Victorio Arana de la Garza: Correctly that. Tomás Lozano: Now we'll continue with Yuri Fernandes from JPMorgan. Yuri Fernandes: I would like to explore a little bit the insurance results here. And I know this is volatile and it's hard to predict the dynamic. But this quarter, we saw the premium decreasing a little bit, like 3% quarter-over-quarter. But technical reserves, they were down 17%. So basically, the insurance reserves, they didn't follow as much premiums. And this helped right in the end, like this help insurance results. So if you can provide a little bit of more color why this happened like any clarification? How do you see the insurance results? And a second one, and this is very quick, Rafa and Marcos, just on the guidance. So just make it clear. The guidance excludes -- includes Bineo. So basically, we are doing all the calculations with your accounting earnings, meaning that the 4Q could be stronger, right? Like basically, you are using the MXN 13 billion as net income for this quarter to get to our guidance? José Marcos Ramírez Miguel: I start with the second one. Thank you. Yes, the guidance that we are providing to you, if you see there is a better guidance in some items, and this is the guidance included in the Benio. That's the one that everything is in there. And the first one, taking the insurance, Rafa, please go ahead. Rafael Victorio Arana de la Garza: Yes, I think the first thing to notice is that the insurance business is having an extraordinary good year. We expect net income to grow very close to 20% or above that. You know that the return on equity of the company is 68%. What happens is basically that one wealth management product that we are actively selling on our wealth clients had a small reduction on the year. And that really explains the reduction in the technical reserves because that product basically, you need to reserve 100% when you put on the book. But there was not a lack of growth on the company basically on the property and casualty. And also, we are becoming quite important on the wealth management fees for this product. So nothing really to worry about that something is going on, not in the right trend on the insurance. On the other hand, I think, the insurance business providing the 20% and the 68% of return on equity, and the activity that the company is having is becoming really a very important part of the net income of the whole group, the insurance company. So no, it's basically -- and that is explained very well on the group that we provide to you how the technical reserves went down because of the -- we have a reduction on the placement of this product for this quarter that will start again on the fourth quarter. So that's basically this. And I also want to add another thing on there because somebody would like to ask this, what's going to happen with the insurance provisions in going around the market that some companies didn't provide. Banorte just fully, you can -- fully provide for the issues about the taxes on the insurance part. So there will be no effect for us on the insurance side. So that's for the market to know in that part because that was also another concern for some investors that what's going to happen once the settlement of the insurance business at what's going to happen with Banorte. Banorte is as always fully provided that. Operator: Now we'll take our next question from Ricardo Buchpiguel from BTG. Ricardo Buchpiguel: As you mentioned in the presentation, we have been seeing that the bank has been growing quite a bit in consumer loans. So could you walk us through what is driving that trading demand that you talked in the presentation, especially given the slowing down macro environment? And are you expanding to new customer profiles or regions here? Or is it mostly growth within the Banorte traditional portfolio base? Rafael Victorio Arana de la Garza: I think that what's very important, Banorte has been really revamping all the processes that we have for the consumer and not for the companies. But on the consumer, especially on the mortgage process and on the card process and on the credit card process, you really see most of them of the -- most efficient process in the market that allow us to serve that and go back to the client in a very short period of time. So what you see on the numbers of Banorte, and you can compare that to the other bank that is very active on that bank, on this part is that Banorte really is penetrating the market on a month-by-month basis. And the most important thing, if you look at the NPS of the car loans that stayed really lower 0.6% and also NPLs on the mortgage group that is still very low, just fairly above 1% on NPL is basically all the processes, and we are serving our clients, but also we are attracting a lot of new clients by the products that we sell on the mortgage part and on the car loans and also on the credit cards. If you see the expansion that we have in credit cards and charge, you continue to see that card loans are growing 31%. So many of those clients are clients of Banorte, but a lot also are coming from the market. Credit card was growing 16%. So we are also outpacing the market in that. And the most -- and in the mortgage group that is around 8% to 9%. The most important thing is that we are really attracting the clients that we like and it's basically -- based upon the pricing policy that we follow based upon the risk of the client and the value of the client, we think that we are offering the best deal in the market for the mortgage part. So it's coming from the already existing client base, but also a new -- a lot of new clients are coming to the bank based upon the offers that we've had on the car loans and on the mortgage and on the credit. Tomás Lozano: We'll continue with Ernesto Gabilondo. Ernesto is having some comments, so he sent me his questions to read them. We believe there are 5 negative headlines for next year. One, a potential deceleration on the auto portfolio because of higher tariffs to autos and auto parts from Chinese cars? Two, lower U.S. rates in the loan portfolio that you have in dollars. Third, lower tax banking deductions. Other banks have anticipated the basis points impact of the effective tax rate. Fourth, the value-added tax impact on the insurance sector. Other banks are disclosing the impact for next year. Five, the proposal in the interchange fees, I think Ernesto, that has been already covered. And finally, can you please elaborate on your initial thoughts on these impacts and the potential tailwinds, especially if Mexico reaches the USMCA renegotiation? José Marcos Ramírez Miguel: Yes, that's the bad things. There is also good things. The GDP is going to be [ corporate ]. We still don't know, as we said, the proposal in the interchange fees, so that's out. And regarding the orders, we can work one by one. And yes -- but the insurance sector, we have covered regarding that is not a fit for us. So I see more plus than minus for the next year. Maybe Alex can walk us how we see things for the next year [indiscernible]. Rafa, please go ahead. Rafael Victorio Arana de la Garza: Let me -- Ernesto, let me guide you on the impact of the VAT for the insurance. Remember that Banorte prices the insurance based upon the risk of the client. So we don't have just a single price for that. So I think we could accommodate that impact that the VAT will have based upon this volution that we have. And just before Alex comes and say, look, this year was supposed to be 0 GDP, and we continue to grow on that part. Next year is expected to be somewhat a better year on that part. So there will be headwinds that you mentioned that potentially coming for everywhere. But I would say that if the USMCA goes forward, the tailwind was -- is going to be quite strong. Alejandro Padilla: And yes, this is Alejandro Padilla, Economist. Well, from the macro side and answering some of your questions, first, in terms of GDP, as Marcos was mentioning before, we are holding our 0.5% GDP for this year. We observed a contraction in the third quarter. However, I think that in the fourth quarter, we should see a recovery, why because of what we mentioned before, there are some seasonal factors that tend to be very positive in terms of consumption by the end of the year. Moving forward to 2026, our forecast is 1.8%, and this is supported by several factors. The first one is that we're going to have an inertial growth component of slightly above 40 basis points. Then we expect a recovery in private consumption combined with a rebounding tourism during the summer, this is associated, as Marcos mentioned before, with the FIFA World Cup. This could add between 40 to 50 basis points to growth. Then we have a positive effect on primary activities due to better weather conditions in 2025 that will benefit crops in 2026. The fourth one is that we expect a solid external sector performance as Rafael was mentioning before. Considering that Mexico has an effective tariff rate that is lower than the rest of the world, and this has been supportive of the Mexican exports that have been growing at a 2-digit pace throughout 2025. And I think that although not at the similar pace, but they will continue growing throughout 2026. And the big one is that public construction and also infrastructure projects that the government plans to reactivate as part of its priority programs will be equivalent to almost 1.4 percentage points of GDP, and this could be also beneficial for GDP in 2026. And then if we move into tariffs, well, although Mexico is facing 2 types of tariffs, the specific country tariffs that the U.S. has imposed to Mexico and Canada and the tariffs that are associated with sectoral goods to the rest of the world, the effective tariff in Mexico is less than 7% in the world, is 17.4%. So we have relative position that is stronger vis-a-vis the China and other competitors. So I think that will support exports for the remaining of 2025, but especially in 2026. And then regarding the USMCA, we have a very constructive view in that regard. We believe that Mexico will continue playing a key role within the highly integrated value chains with the U.S. And we think that the review process in 2026 will go in a very positive way taking into account that there is a lot of cooperation and coordination between Mexico and the U.S. and that this will result in a USMCA 2.0 that will allow Mexico to increase its participation in the U.S. market. Tomás Lozano: Now we will continue with Tito Labarta from Goldman. Daer Labarta: A couple of questions. first, just on the Bineo. So there should be no more impairment charges from here, I assume. Is that correct? And would there be any potential tax benefits that you can get from this? And then -- but maybe more importantly, I mean, you sold it to another fintech, I guess, mostly just to get rid of the license and get maybe something in return. But maybe talk a little bit about your own digital operations, how that's evolving, why you feel comfortable selling Bineo and how the whole digitizing the bank is going, particularly as fintechs maybe get a little bit more relevant over time? And then I have a follow-up on provisions after. José Marcos Ramírez Miguel: Thank you, Tito, for the question. First, there is no more impairment charges. That's it. We don't see more -- everything. We don't see any tax benefits on the other hand. So that's it. We won't talk about Bineo anymore. And we learned a lot. There is a lot of experience that we learn. Remember that 4 years ago, we took all the roles, possible roles and we learn from them. So it's obvious that we -- now we are prepared, and we are stronger, and we did take our digital banking inside and whatever. So I don't know if Rafa want to say something else, but yes, there is a lot of learning, obviously. Rafael Victorio Arana de la Garza: Yes. What Marcos mentioned, Tito, is that we learned a lot on that, but what we also discovered that, that it was not just the issuance of having a digital bank from scratch that was supposed to provide that learning process. And I think it did. But the most important thing is that Banorte has a very clear path on how to address the digital evolution that we see on the young people and the newcomers into the banking system with a very good proposition that you will see in the market pretty soon that basically addresses the issues of the newcomers that they really need a lot of financial education and a lot of practical ways to manage the interaction with the client, with the app on that part. And based upon all, of course, that we have learned and all the learning process that we have also in the artificial intelligence part, we will deploy that in a very short period of time to address the capabilities of Banorte to really reach that part of the population that was not really an important, I would say, goal of Banorte for a time because we basically were very happy delivering a very good mobile application for the mid- to the high end of part of the payer mix. But we were losing a little bit on the part that we learned from Bineo and from Rappi, the newcomers into the banking process. But I think we have a very good response to that, and you will see that in a very short period. Daer Labarta: Great. And then my follow-up on the provisions, right? You mentioned the cost of risk excluding isolated case was 1.87%. So it implies the additional provision was about MXN 2.5 billion, if I'm correct when -- is that the right number? And given there could be some guarantees here, do you expect to be able to recover this over time? How quickly? And does the guidance factor in any recovery there? And also, I guess, is this now fully provisioned? Gerardo Salazar Viezca: Yes. Up to now, Tito, it is 45% provisioned. But let me tell you about -- despite this higher provisioning, the intrinsic economic value of the underlying assets and collateral structure supports a favorable recovery outlook. The exposure retains substantial realizable value given the quality, liquidity and marketability of the pledge collateral as well as the borrowers receivable repayment capacity. From a valuation standpoint, internal stress testing and discounted cash flow analysis indicate a higher expected recovery rate, well above typical levels for comparable distress exposures, the assets net present value under conservative recovery assumptions remain significant, limited ultimate loss severity. Accordingly, while the provision reflects a prudent accounting treatment aligned with expected credit loss models, the economic loss expectation is materially lower. This positions the bank to achieve a reasonable recovery ratio as resolution progresses mitigating the impact on capital and profitability metrics. Daer Labarta: Okay. And is that the MXN 2.5 billion the right amount? I had a different number initially, but just want to confirm how much that was the provision for the isolated case? Gerardo Salazar Viezca: Yes. The provision is around 2.2%. Operator: Now we'll take our next question with Marcelo Mizrahi with Banco. Marcelo Mizrahi: So my question is regarding the cost of earnings. So what we see -- we saw very good results coming from that part. And we -- it's important to hear you about the competition, how you guys are thinking about the competition and the cost of funding, why the cost of funding of Banorte is going lower, and it is already impacting the NIM and probably could be some good upside to the next year. So the question is regarding how is the competition? And how do you believe guys that the cost of funding will be in the next couple of quarters? José Marcos Ramírez Miguel: Thank you, Marcelo. I guess the competition -- you're talking about the newcomers, I mean, also, no? Rafa, please go ahead. Rafael Victorio Arana de la Garza: Yes, we continue to see -- as you can see on the funding cost that is going down, not just because of the rates because we are getting rid of expensive funding that we needed when the rate of growth of the asset side really happened to Banorte. Now we are a note we are balanced that with our own funding part. I can give you some numbers on this. So the overall growth of the non-interest bearing demand deposits is around 6%, and it will end the year well above that because of the seasonality of the year. Time deposits also is a pretty good story around 10% with a very reasonable. I would say, price to offer to the client based upon the quality and profitability of the client. So we don't see really the big effect that happened when the new entrance were offering 15%. And that is also going down, and it's becoming a lot more rational on that part. So we continue to see pretty good activity on the funding side, lowering the cost on a permanent basis. And I think. As Alejandro mentioned, next year will be a good activity on the funding side with a very, very balanced cost on the different types of offers that we do for the non-interest bearing and interest bearing deposit. And the mix continues to be quite nice, 31% is in time deposits and 69% in demand deposits. So I think we have a well-positioned bank that provides a lot of services and opportunities for the people. But we see is that we are opening now more new accounts at the branches and on the digital side than any year before. So we continue to see that the clients based upon our model that you can open everything in minutes on digital or in physical, is attracting a lot of good clients, and that is giving us a noninterest-bearing part growth and also the time deposits growth on a very balanced cost. Marcelo Mizrahi: Looking forward, it's possible to maintain you guys believe that if we will see a better environment to growth it's possible to maintain this cost of funding, this percentage compared to the interest rates or not? Rafael Victorio Arana de la Garza: Well, I think so. I think we will continue to keep the funding cost trending down. There's a lot of initiatives all over the place: transactional banking, cash management, SMEs, individuals, all over the place we are looking for funds. Gerardo Salazar Viezca: Let me drop. I would like to make a position regarding the last question of Tito Labarta. Tito, if you are still there -- let me be very precise with the provisioning for the quarter, it's 1.7. José Marcos Ramírez Miguel: Yes. Product specification. Tomás Lozano: We'll continue with Renato Meloni from Autonomous. Renato Meloni: So first I wanted to focus a bit on this decline on the interest-bearing deposits -- was this -- you mentioned that it was some expensive funding that you've eliminated? Was this concentrated or among separate clients? And then your loan-to-deposit rate went to 105%. So I'm wondering if you can still increase leverage here or keep growing with that level. And then just a second follow-up. During the presentation, Rafa was mentioning that the provisions for the credit card business. As far as I understand, would be reversed in the upcoming quarters. So just wanted to make sure that this reversal is happening and why are you provisioning now and then reversing it later? Gerardo Salazar Viezca: Yes. I will tell you, Renato, that from the overall point of view, we see the increase in provisions for credit card loans during the third quarter primarily reflecting the extraordinary expansion of the portfolio. As you remember, Marcos was mentioning a 16.1% growth year-over-year. That's very important to keep into context. And this effect is mechanical and volume-driven as provisioning is applied to a larger base of forming assets, particularly those in early stages of seasoning that naturally carry higher model probabilities of default. Importantly, delinquency rates and risk metrics remain stable across cohorts or clusters and that confirms that the high provisions stem from the portfolio growth and composition effect. Another factor that we must take into consideration for this third quarter should be the extraordinary provisioning with Tarjetas del Futuro credit card portfolio. And this effect is expected to be reversed in the short term due to model calibration. And that's the quantitative effect that Rafa was mentioning is MXN 400 million. So we expect a reversion, but this is not just mean reversion, but reversion in absolute value of around MXN 400 million in provisions. Rafael Victorio Arana de la Garza: Yes. You mentioned about the interest-bearing deposits, remember that Banorte had a very strong years, 2 years ago on the loan growth that really, really overshoot concerning our capacity to fund the book. So that created a need to go into the market and go for market funding. Now that we have been growing the funding side in a very important way, and we are now very balanced assets against liabilities, we have the capacity to get rid of funding that is not necessary anymore. And it was much more expensive against the funding that we can really go into the market today or keeping the growth on the natural funding side on the interest-bearing deposits, retail deposits, commercial and SME deposits. So that's the reason that you will continue to see an expanding size on the -- or the size of the deposit or the deposit growth, but also with a much better price in the coming months based upon the trend that we see in the noninterest-bearing and the trend that we continue to see on the time deposits with a very reasonable rate that really reflects the value and the different values that we provide to our clients. So I think we are getting again into a very balanced position. And you can see that easily on the LDR. You will see that, by the end of the year, the LDR will also drop again around 98%, 97% with a very good funding costs for the year. Tomás Lozano: We'll continue with Daniel Vaz from Safra. Daniel Vaz: Congrats on the strong NIM performance, I was looking at the sensitivity right now is practically 0. So you have been able to expand margins in this easing rate environment. It's quite impressive. And to face, well, I think, Ernesto mentioned, the negative headwinds. You see the funding benefits that you mentioned, you see better GDP? And I want to focus on the favorable loan mix as your consumer lending has been outpacing the portfolio, right? So on retail, looking ahead to 2026, you're growing now 12% year-over-year, right? So on the consumer portfolio, and well above this in car loans and credit cards. I saw -- I noted some acceleration in payroll and mortgage. I think it's normally much more important and tend to perform better on lower interest rate scenario. So my question is, do you see room for this portfolio -- this consumer portfolio to expand above this current base of 12% for the next year? And maybe if that -- it's a follow-up question, would it be enough to guide the market to NIMs even better than your guidance in 2025? José Marcos Ramírez Miguel: Thank you, Daniel. You're pushing the bar too high, but it seems that, yes, there is room for improvement. Yes. We think that next year, we will grow double-digit growth in our portfolio. And we will release that in January, I guess, next year. But yes, we're -- let's call it that way. We are optimistic and documented optimistic. So we expect a good year next year, and we are working on that and that we need to handle a lot of things internally. But it seems that it's going to be a good year, and we are expecting -- and yes, we can grow more than in the consumer portfolio next year, the answer is yes. And the better NIMs, we're happy with the NIM that we have right now, but maybe you can improve them a little bit. That's right. I don't know, Rafael, you want to say something? Rafael Victorio Arana de la Garza: The only thing that I would add is that we see a big opportunity on the payable portfolio. We are launching a lot of improvements on the value proposition on the payable portfolio, and it linked with the commercial and the corporate and the government and the retail part. So the payroll will be a good story. Credit cards continue to be, I would say, the most efficient product to be -- to be acquired in the market and also on the benefits. If you walk into one of our offices and you decide to go into the offices and in 5 minutes, you will get your credit card, the credit card that you like and based upon your profile on that. But if you want to go into the mobile, it would be exactly the same. You will get your digital credit card in less than minutes, in 5 minutes. And then if you want to get your card in physical, that we'll send it to you in a very short period of time. So a lot of improvement on the process side allow us to compete in a better way. And being the first in the market by the response to the client, that gives us an edge that we have been using in this. And also, we are adding more and more value into the propositions for the client to become really a very related client to the bank in cross sell. We expect cross-sell to keep increasing an important way. The hyperpersonalization process that we are using by providing each of the clients base of the risk of the client and the value of the client of what they are outside with us, that is allowing to bring a lot of good clients into the bank. So the processes are in place and improving. I think the analytics are in place and it's very, very relevant the way we do this. And the pricing also, we price every single client differently based upon the risk and potential value for the bank. So that is what really is driving the growth on the consumer. It's not just pure demand, it's that really the value proposition that we are offering on a client-by-client and basis is being the difference in the market. Operator: Now we'll go with Andres Soto from Santander. Andres Soto: My question is regarding some comments that you guys have already made in terms of GDP growth and loan growth for next year. I understand you are expecting rebound to 1.8%, and you expect loan growth to remain at double digit in 2026. I would like -- given that 1 important consideration there is the USMCA renegotiation, I would like to understand what is your expectation in terms of timing for this? Do you expect next year to be and even year in terms of growth? Or do you expect most of the growth to be delivered in the second half of the year given this expectation? And also tied with that, how these shape of recovery will translate into your cost of risk performance over the next few quarters? Alejandro Padilla: Thank you, Marcos. Thanks, Andres. Well, we think that's going to be pretty balanced, the growth dynamics for 2026. Regarding your question about the USMCA review, well, according to the agreement, it will officially start on July 2026. However, some issues have already been addressed by Mexico and by the U.S. as well, like, for example, making the consultations with industry leaders and designing the whole negotiating process. So I think that although it's going to be difficult to have the complete agreement by 2026, we can have a very good idea of what's happening on a sectorial basis. I think it will depend also on midterm elections in the U.S. and how President Trump sees the result for the Republican party because on that, it will depend if he goes and tries to reach a faster agreement or not. Regardless of that, I think that by the third or fourth quarter of 2026, we will have a very clear idea of what's going to happen with the USMCA 2.0. And I think this is going to be positive in terms of investment, for example, that has been one of the main sectors in Mexico that have been lagging behind, obviously, for the uncertainty coming from tariffs, but I think that the 2026 can be a good turning point in the price relationship between the Mexico and the U.S. And that's why we are optimistic and our GDP number of 1.8% contemplates that idea. I don't know, Rafael, you want to go through the loan question. Rafael Victorio Arana de la Garza: On the baseline of a scenario of a 1.8% GDP growth, the cost of risk is expected to remain contained around the same interval between 1.8% and 2%. This is going to be supported by several structural and cyclical factors that are favorable to the bank. On the structural side, the institution benefits from a very well-diversified loan portfolio. We have to remember that. And also a conservative underwriting framework and enhanced early warning and collection models that include to improve -- that continue to improve risk discrimination and recovery rates. Cyclically, stable employment conditions, moderate inflation and gradual easing of interest rate should sustain borrower affordability and credit performance, and particularly on -- in the payroll and mortgage segments. Furthermore, the ongoing optimization of provisioning models after calibration adjustments in 2025 will likely normalize credit cost levels, and that's our expectation. Let me tell you that, Andres, overall, these dynamics suggest that despite modest economic expansion, the bank's cost of risk should remain within historic range, reflecting both prudent risk management and resilient asset quality fundamentals. Andres Soto: If I may, a follow-up question to Alex. In this 1.8% GDP growth expectation, what are you considering in terms of private investment? And I imagine this is mostly dependent on the USMCA renegotiation? Or is there any other factors that make you optimistic about private investment recovery in 2026? Unknown Executive: Well, that's a very good question, Andres, and I can tell you that our forecast in terms of private investment will be highly correlated with the investment that the government will deploy throughout 2026. As I was mentioning before, in the budget of 2026, the government is planning to spend close to MXN 500 billion, 1.3 percentage points of GDP on infrastructure and -- well, I think that's plan Mexico and other type of mix programs between the private and public sector will be deployed in 2026 as well. So I think that's positive. And the second 1 is that, yes, I think that we might see some firms that will start doing some CapEx taking into account more certain scenario in terms of trade between the U.S. and Mexico. So all of these are contemplated into our 1.8% GDP forecast for 2026. Operator: Now we'll take Edson Murguia with from Summacap. Edson Murguia: Okay. I'm not sure if I'm listening. But I have 2 questions. One is specifically for Dr. Salazar. Could you give us a little bit more color about this calibration model, specifically in the consumer loan book? Because you mentioned Dr. Salazar, this was related to calibration, but could you elaborate a little bit more? And my second question is regarding on the brokerage business. Could you give us a little bit more color about why total assets has a reduction this quarter, but the AUM increase stop trying to figure out the rationale between the business, per se. José Marcos Ramírez Miguel: Let's go with the first one. Rafael Victorio Arana de la Garza: Yes. The bank is continuing to refine it's retail credit risk models. And that is to enhance the accuracy or expected loss estimation across consumer and payroll portfolios. The ongoing calibration process incorporates updated behavioral data, revised macroeconomic assumptions and recent portfolio performance trends that assures that the probity of default and loss given default parameters reflect current risk conditions more precisely. And that always gets proven by statistics like called Kolmogorov-Smirnov, the KS, receiver operating characteristics, ROCs, also the area under the curve and R-squared. So if data is telling us that we have permission to calibrate our models, we will go ahead and do it because this is always data and model based. Remember, we use in the retail side of our loan portfolio around 120 internal credit risk models. And they go all the way from different segments, different products around also different clusters of the markets that we are attending. Tomás Lozano: And the second part, Edson, remember that we do see the position between bank and brokerage and we have movements every day or every quarter. So I think it's really not material to see a movement in any of the isolated books. Edson Murguia: Okay. And last, just a clarification. Marcos, you mentioned that the dividend that is going to propose to the extraordinary shareholder meeting is going to be MXN 60.99, or it's going to be MXN 0.90? José Marcos Ramírez Miguel: No, MXN 0.99, sorry about that. Tomás Lozano: You can find the full information if you want in the assembly. Now we'll continue with Carlos Gomez from HSBC. Carlos Gomez-Lopez: First of all, congratulations on your first 125 years of existence many more to come, I hope. Second, in particular, you mentioned the interchange fee, and that is still to be negotiated. However, what is not negotiated, we understand is the nondeductibility of the IPAP contribution. Could you comment on that and would you expect that partially or totally to be passed on to deposit costs? And if Tomas doesn't kill me, just follow-up on the growth question. We understand that you expect better 2026. But when we look at the numbers right now, we seem to be slowing down, at least that is our perception. Is that what you see? Do you see the economy, which is still getting slower, and you expect it to recover during 2026, or you have already started to see a recovery? José Marcos Ramírez Miguel: Let's start for the -- as you can see it's not only Mexico, a lot of countries, they have these regulations, so, we need to live with that. And maybe part of this is going to be passed on and maybe we will, I don't know how to say the word, swallow it. But it is what it is. And for the next year, you will see it on the guide and it's going to be included there. But we don't see that affect us too much. That's the correct answer. We don't like specific taxes, but -- but this is -- if you see in other contracts they have it, so we will manage it. And the second one. First, Rafael... Rafael Victorio Arana de la Garza: Carlos, we -- if you look at the consumer book from the October numbers are pretty, pretty strong, even stronger than the September numbers. So we haven't seen any slowdown in the consumer at all. On the contrary, we continue to see very strong numbers coming from the consumer. And at the same time, very active now is the government book and also dollar book starts to come alive again. So no, we haven't seen as much... José Marcos Ramírez Miguel: Alex? Unknown Executive: Yes. And well, regarding the GDP question, yes, Carlos, as you notice, the third quarter GDP came in with a mild contraction. However, with some high-frequency indicators. This suggests that we might see a rebound in the fourth quarter. Indeed, we are expecting an increase of 0.3% on a quarterly basis. And this is mainly by some more positive drivers coming from consumption, which has been lagging throughout 2025, but we are starting to see some recovery. So I think that this trend can extend into 2026, this recovery that we might observe throughout the fourth quarter of this year. Tomás Lozano: We have a follow-up question from Bradesco. Marcelo, please go ahead. Marcelo Mizrahi: So regarding the efficiency, so the efficiency ratio are thinking about expense into the next year. I believe that the sale of Bineo could bring some upside to the efficiency ratio in the next year or even in the next few years. Could you guys give us some color about that target or something about that? Rafael Victorio Arana de la Garza: Yes. The fact is that by canceling the operation of Bineo, you will see that basically, what we put on the group today on the -- what was the impact of the Bineo operation, we think that just to give you an idea that based upon the cost savings, we will recover that in 7 months. So that gives you an idea of how the evolution of the efficiency ratio comes. Also, once we get the go from the regulators, the Rappi operation will be included into the scale of Banorte. So that will be also a reduction in cost. And the most important part is that when you will look at the recurring days of cost of Banorte and what was Bineo and Rappi adding was close to 5 percentage points. So we started to go down to 3 percentage points less in the coming year. Just based upon on these 2 operations, plus efficiencies that we can we can achieve. So you will start to see -- now it's in 1 single digit, but it's in uppers 1 single digit. You will see those numbers trend from the 7% to the 8% from the next year and then drop again to very close to inflation plus 150 basis points by the third year. That's the evolution that is on the efficiency ratio. Tomás Lozano: Thank you very much. Thank you for your interest in Banorte. With this, we will conclude our presentation. Thanks.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Novo Nordisk Earnings 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 first speaker today, Jacob Rode, Head of Investor Relations. Please, go ahead. Jacob Martin Rode: Thank you. Welcome to this Novo Nordisk Earnings Call for the First 9 Months of 2025. My name is Jacob Rode, and I'm the Head of Investor Relations. With me today are CEO of Novo Nordisk, Mike Doustdar; Executive Vice President, Product and Portfolio Strategy, Ludovic Helfgott; Executive Vice President, U.S. Operations, Dave Moore; Executive Vice President, Research and Development and Chief Scientific Officer, Martin Holst Lange; and Chief Financial Officer, Karsten Knudsen. All speakers will be available for the Q&A session. Please note that the call is being webcasted live, and a recording will be made available on our website as well. The call is scheduled to last a little more than 1 hour. Please turn to the next slide. The presentation is structured as outlined on Slide 2. Please note that all sales and operating profit growth statements will be at constant exchange rates unless otherwise specified. Next slide, please. We need to advise you that this call will contain forward-looking statements. These are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For further information on risk factors, please see the company announcement for the first 9 months of 2025 as well as the slides prepared for this presentation. And with that, over to you, Mike, for an update on our strategic aspirations. Maziar Doustdar: Thank you, Jacob. Next slide, please. In the first 9 months of 2025, we delivered 15% sales growth and 10% operating profit growth. We've also narrowed our guidance range to 8% to 11% on sales and 4% to 7% for operating profit. This is because we expect lower growth for our GLP-1 treatment in diabetes and obesity. Karsten will get back to the guidance update later in the call. Looking into the R&D in diabetes, Rybelsus is now approved in the U.S. and EU with CV indications based on the SOUL trial. Within obesity, and business development, we have progressed on a number of projects that Martin will come back to later. In rare disease, we have now submitted Mim8 for regulatory approval in both U.S. and EU. We're now serving around 46 million people living with diabetes and obesity. This is around 3 million more people with our GLP-1 treatment compared to just 12 months ago. Furthermore, I would like to note that 2025 strategic aspirations is our current framework for reporting, and we look forward to updating this next year as the current strategic aspiration runs out. Next slide, please. Since I became CEO, I have said several times that Novo Nordisk will sharpen its focus on core areas, specifically diabetes and obesity. I want to take a moment to explain how we have refined our strategy. For more than 100 years, we have been guided by a simple purpose: to identify and solve major unmet medical needs. This commitment is unchanged. There are many people who can benefit from expertise in diabetes and obesity, and we believe we can serve them better than anyone else. Going forward, we will concentrate on these areas where we can make the greatest difference. Our strategy begins with patients at the center of everything we will do. Way more than 1 billion people are affected by diabetes or obesity. We will work tirelessly to develop products that help them live healthier, fuller lives. Some of these products will be developed internally. Others will be added to our portfolio through partnerships and acquisitions. Many of these assets can address multiple unmet needs. We will explore those opportunities and expand indications where appropriate to serve our patients. Speaking of patients, it is a known fact that obesity and diabetes vary by individual and often comes with comorbidities that lack effective treatments. As with the Akero acquisition, Novo Nordisk will keep pursuing innovation with identification within research and then advancing those to development to address comorbidities within our core and the overlaps with those cores. We are now shaping our focus -- sharpening our focus. In the past, we spread our resources into areas a bit further away from our core. Think about stem cell research for Parkinson's disease. Therefore, during this last quarter, we have discontinued several noncore assets and redirected resources to areas aligned with our strength. We will intensify our commercial efforts to strengthen competitiveness. To meet evolving market dynamics and increasingly consumer-like behavior, we will, for example, expand telehealth capabilities across markets. In short, we remain disciplined about where we will compete within diabetes, obesity and related comorbidities in the years ahead. We will also continue our targeted research and commercial work in rare disease. And to support this strategy, we have launched a company-wide transformation, which I would like to give you an update on its progress right now. Please go to the next slide. We previously announced a company-wide transformation designed to simplify our operating model, accelerate decision-making and reallocate capital and resource towards the highest growth opportunities in diabetes and obesity. This program supports our strategy to capture rising global demand and strengthening our competitive position in the increasingly consumer-like obesity market. As part of the plan, we expect a reduction of approximately 9,000 positions globally. While this decision was not taken lightly, it is expected to drive approximately DKK 8 billion in annual savings by the end of 2026. Those savings will be redeployed to expand our diabetes and obesity franchises and fund strategic priorities. We recognize the human impact of these changes and remain committed to responsible transition for affected colleagues. At the same time, we're confident this transformation will increase operational efficiency and strengthen our long-term future and enhance return for our shareholders. I will now hand over to Ludovic for an update on our commercial execution for the first 9 months of 2025. Ludovic Helfgott: Thank you very much, Mike, and please turn to the next slide. In the first 9 months of 2025, our total sales increased by 15%. The sales growth was driven by both operating units. U.S. operations grew 15% and international operations grew 16%. Sales growth in the first 9 months of 2025 was positively impacted by one-offs in the U.S. of around DKK 6 billion. Our GLP-1 sales in diabetes increased by 10%, driven by both operating units growing at the same rate. Insulin sales increased by 3%, driven by U.S. operations growing 18%. The sales increase was positively impacted by gross to net adjustments related to prior years as well as channel and payer mix. This was partially countered by a decline in volume. International operations sales decreased 2%. Obesity care sales increased 41%, driven by U.S. operations growing 24% and international operations growing 83%. Our rare disease sales increased by 13%. This was driven by sales increase in the U.S. of 14% and in international operations of 13%. Next slide, please. Sales in international operations grew by 16% in the first 9 months of 2025, driven by GLP-1 products. GLP-1 diabetes sales increased by 10%, driven by sales growth of Ozempic and Rybelsus. In Region China, GLP-1 diabetes sales decreased by 4%, which was negatively impacted by wholesaler inventory movements. Obesity care grew by 83% to DKK 22.4 billion. Sales of Wegovy reached approximately DKK 20 billion growing at 168%, driven by sales growth across all regions. Please go to next slide. In the combined diabetes and obesity GLP-1 market, Novo Nordisk remains the market leader in international operations with a volume market share of 68%. Rybelsus is now available in more than 40 countries, and Ozempic continues to be the leading GLP-1 diabetes product within international operations have been launched in around 80 countries. In obesity, Wegovy is now launched in more than 45 countries with more to come. Oral semaglutide 25-milligram or Wegovy in a pill has been submitted in the EU for potential launch in selected EU markets. The GLP-1 class growth of 35% in international operations is encouraging. And while competition in diabetes and obesity across international operations is intensifying, the unmet needs remain substantial. And with that, I would like to hand it over to Dave for an update on our U.S. operations. David Moore: Thank you, Ludovic. Please go to the next slide. Sales of GLP-1 diabetes care products in the U.S. increased by 10% in the first 9 months of 2025. The sales increase was driven by continued uptake of Ozempic, partially countered by Victoza and Rybelsus. Ozempic sales in the U.S. were positively impacted by gross to net sales adjustments and wholesaler stocking. Weekly Ozempic prescriptions are currently around 670,000 in standard units compared to 690,000 standard units in the second quarter of 2025. The GLP-1 diabetes market grew around 10% in the third quarter of 2025 compared to the third quarter of 2024. In the U.S., we continue to invest in commercial activities and have recently launched Ozempic in our direct-to-patient cash offering. Please go to the next slide. Wegovy sales increased by 25% in the U.S. operations in the first 9 months of 2025. The Wegovy sales growth was driven by increased volumes, partially countered by lower realized prices. Wegovy has around 270,000 weekly prescriptions compared to 280,000 weekly prescriptions at the end of last quarter. In August, we announced that the U.S. FDA approved Wegovy for the treatment of MASH. In U.S. operations, we have established a sales force targeting U.S. hepatologists and gastroenterologists while we work to build access in this segment. Generally, we also continue to work on expanding access to safe and authentic Wegovy. Around 55 million people with obesity have Wegovy coverage in the U.S. with more than 10 million people estimated to be covered with Medicaid. However, looking into 2026, Several states have already announced changes to coverage for obesity medicines in response to budgetary concerns, which will affect Medicaid access to Wegovy. Regrettably, Novo Nordisk market research shows that compounding has continued to increase. Multiple entities continue to market and sell compounded GLP-1s and it is now estimated to be well above 1 million patients in the U.S. that are currently on compounded GLP-1. Novo Nordisk launched NovoCare Pharmacy in March of 2025 and together with retail channel, total cash market is up around 10% of total Wegovy prescriptions. Novo Nordisk will continue to invest in the expansion of direct-to-patient initiatives like the recently announced collaborations with GoodRx and Costco. We continue to anticipate a regulatory decision regarding Wegovy in a pill later this year, which then we will be ready to launch in early 2026. Now back to you, Ludovic. Ludovic Helfgott: Thanks, Dave. Please turn to the next slide. Yesterday, we confirmed that we submitted an updated proposal to acquire Metsera to further strengthen our research and development portfolio in diabetes and obesity. As we said before, unlocking the full potential of the obesity market will require a broad and deep portfolio with different treatment options, formats, serving differentiation groups and their very different preferences. Obesity treatment is still in its early stage. And in Novo Nordisk, we foresee future patient segments that, for example, could be categorized based on BMI, age, gender, lifestyle behaviors and comorbidities. We believe that Metsera's innovative pipeline would further enhance our opportunity to meet all these very different needs of all these very different groups. MET-097 is a potential best-in-class once-monthly GLP-1 treatment and MET-233 is a next-generation amylin asset. The pipeline of Metsera also includes a combination of the 2 mentioned above as well as innovative oral and injectable preclinical assets. Furthermore, Metsera's institutional knowledge and capabilities around peptide engineering and synthesis, half-life extension technologies and oral peptide delivery nicely complements Novo Nordisk's core strength in research. The proposed deal structure includes an upfront payment of USD 62.2 per share in cash, equal to an approximate enterprise value of USD 6.7 billion. The cash consideration is paid at signing in exchange for nonvoting preferred stock, representing 50% of Metsera's shared capital. In addition, up to USD 2.8 billion in contingent value right CVRs will be issued upon the closing of the acquisition in exchange for the remaining shares. The CVRs are based on the achievement of certain clinical and regulatory milestones. In total, Metsera is eligible to receive up to USD 10 billion or USD 86.2 per share. Novo Nordisk believes that the proposal, including the structure of the transaction complies with all applicable laws and is in the best interest of patients, who will benefit from our commitment to innovation as well as Metsera's shareholders. The offer highlights Novo Nordisk's commitment to investing in the U.S. and interest in continuing to grow the scale of its U.S. investment. Now over to you, Martin. Martin Lange: Thank you, Ludovic. Please turn to the next slide. As Mike described, we are intensifying our focus on key therapeutic areas such as diabetes and obesity, while continuing our commitment to related comorbidities as well as rare disease. The strategy aligns with our recent acquisition agreements of Akero and Omeros' zaltenibart assets. In early October, we announced the agreement to acquire Akero's efruxifermin, a once-weekly subcutaneous long-acting FGF21 analog with potential to be first to market in F4 and best in class. Efruxifermin complements a strategic position in Novo Nordisk MASH pipeline. Current treatment options such as Wegovy, primarily target patients with F2 and F3 disease states. Consequently, there remains a significant unmet need in the F4 cirrhosis population, for which no approved therapies are currently available. The Phase II data for efruxifermin are encouraging across F2 to F4. Specifically, the SYMMETRY Phase IIb trial demonstrates that after 96 weeks of treatment, 29% of F4 patients show improvement of at least 1 fibrosis stage with no worsening of MASH and 42% achieved MASH resolution with fibrosis -- without fibrosis worsening. This is the first Phase II trial to show statistically significant fibrosis regression in F4 patients for an FGF21 analog. Efruxifermin is currently in the Phase III SYNCHRONY program with pivotal readouts in the coming years and expected launch by the end of this decade. As a result, efruxifermin has the potential to be first-in-class FGF21 analog targeting the F4 population as well as playing a role in F2 and F3 patients, including people who are not responsive to existing treatments. We look forward to leveraging our capabilities to further optimize the SYNCHRONY program trials, assess the potential combinations with our current GLP-1-based portfolio and explore opportunities for additional indications such as alcohol liver disease. Also in October, we announced the agreement to acquire the clinical stage MASP-3 inhibitor zaltenibart from Omeros for rare blood and kidney disorders. This action aligns with the rare disease strategy with a key focus on rare blood disorders. Zaltenibart is currently in Phase II for the acquired rare blood disease paroxysmal nocturnal hemoglobinuria or PNH. Plans are in place to begin a global Phase III program for zaltenibart in PNH. The molecule holds big potential in a number of additional indications within rare disease and kidney disorders, which will be evaluated at a later point in time. We believe our extensive expertise in the development, manufacturing and commercialization of medicines within these fields makes us well positioned to advance these assets, optimize the value of their innovation and ensure they reach the patients in need of these treatments in a very timely fashion. Please turn to the next slide. Looking towards our internal pipeline, we recently published a sub-analysis of REDEFINE 1, focusing on cagrilintide. In the trial, cagrilintide achieved 11.8% weight loss at 68 weeks, assuming full treatment adherence. About 1 in 3 patients on cagrilintide lost at least 15% of their body weight. Overall, cagrilintide was very well tolerated. The most common side effects were gastrointestinal of nature. And the discontinuation rate due to gastrointestinal adverse events was 1.3%. Obesity is a global challenge that requires continued scientific innovation. More treatment options also focusing on tolerability are needed to meet their diverse individual needs and preferences. We are very encouraged by the first Phase III data for cagrilintide from REDEFINE 1, and we look forward to studying it further in Phase III, the so-called RENEW program. RENEW 1 and RENEW 2 will assess the 2.4 milligram dose in people with obesity with and without type 2 diabetes, respectively. Both trials have already been initiated and additional studies evaluating higher doses of cagrilintide are anticipated in the beginning of first half of 2026. Please turn to the next slide. Turning to the upcoming R&D milestones. We're looking forward to the remainder of 2025 with a number of readouts and milestones. In the first half of 2026, we anticipate the readout of the REIMAGINE 3, which is the first of 3 pivotal trials for CagriSema and people with type 2 diabetes. REIMAGINE 3 is a smaller study with CagriSema as an add on to basal insulin. REIMAGINE 2 is the largest study, which will provide comparison to semaglutide and will read out in the first quarter of 2026. We also look forward to the Phase II results of the subcutaneous and oral amycretin in type 2 diabetes in Q4 this year. Within obesity, we completed the Phase I trial with our internal GLP-1/GIP/amylin triagonist. The study assessed the safety, tolerability, pharmacokinetics and pharmacodynamics of the triagonist in the trial. All multiple doses tested appear to have a safe and well-tolerated profile. The result of this study allowed progression to a Phase Ib/II trial in individuals with overweight obesity, which was initiated in October of 2025. Looking forward, we expect the FDA decision regarding the new drug application for the Wegovy pill by the end of this year. Further, the submission of CagriSema as well as the readout of the REDEFINE 4 trial remains on track for the first quarter of 2026. Within rare disease, we have filed Mim8 as once monthly, once every 2 weeks and once weekly prophylaxis treatment to prevent or reduce the frequency of bleeding episodes in people with hemophilia A with and without inhibitors for regulatory approval in the U.S. and in EU. Finally, we anticipate the results of the evoke trials in patients with early Alzheimer's disease later this year. While there are a number of high unmet need for the treatment of Alzheimer's disease, it is important to remind you that this represents a high-risk opportunity. And as the very final remark, while it is not on the slide, I would be remiss if I don't mention that the first readout of ziltivekimab is anticipated to read out in the second half of 2026. With that, over to you, Karsten. Karsten Knudsen: Thank you, Martin. Please turn to the next slide. In the first 9 months of 2025, our sales grew by 12% in Danish kroner and by 15% at constant exchange rates, driven by both operating units. In the third quarter, DKK 9 billion in costs related to the restructuring was booked. The gross margin decreased to 81.0% compared to 84.6% in 2024. The decline in gross margin mainly reflects impact of around DKK 3 billion from the one-off restructuring costs and impairments related to a few production assets. Further cost of goods sold are impacted by amortization and depreciations related to Catalent as well as costs related to ongoing capacity expansions. Sales and distribution costs increased by 12% in Danish kroner and by 15% at constant exchange rates. The increase in costs is driven by both U.S. operations and international operations and is primarily related to Wegovy S&D costs are impacted by one-off restructuring costs of around DKK 2 billion. Research and development costs increased by 9% in Danish kroner and by 10% at constant exchange rates. This reflects increased R&D activity across the early and late-stage portfolio, particularly within obesity care. R&D costs are impacted by one-off restructuring costs of around DKK 4 billion and impairments related to the closure of early noncore projects to free up resources for projects in core therapy areas. This is partially countered by the impairment loss related to ocedurenone of DKK 5.7 billion and other impairments of intangible assets in 2024. Operating profit increased by 5% measured in Danish kroner and by 10% at constant exchange rates. Operating profit adjusted for costs related to the restructuring increased by 16% measured in Danish kroner and 21% at constant exchange rates. Net profit increased by 4% and diluted earnings per share increased by 4% to DKK 16.99. Free cash flow in the first 9 months of 2020 was DKK 63.9 billion compared to DKK 71.8 billion in the first 9 months of 2024, driven by increased capital expenditures. And finally, in the first 9 months of 2025, we have returned DKK 53 billion to shareholders, mainly through dividend payments. Please go to the next slide. For 2025, sales growth is now expected to be 8% to 11% at constant exchange rates. The new range reflects lower expectations for sales growth of our GLP-1 treatments in diabetes and obesity. Given the current exchange rate versus the Danish kroner, sales growth reported in Danish kroner is expected to be around 4 percentage points lower than constant exchange rate growth. In international operations, the updated outlook reflects current growth trends driven by GLP-1 penetration in diabetes and obesity, partially offset by intensifying competition within both diabetes and obesity. In U.S. operations, the outlook is based on current prescription trends for Wegovy and Ozempic as well as intensifying competition and pricing pressure within both diabetes and obesity. Operating profit is now expected to be 4% to 7% at constant exchange rates, negatively impacted by DKK 8 billion in restructuring costs. Given the current exchange rates versus Danish kroner, growth reported in Danish kroner is expected to be around 6 percentage points lower than at constant exchange rates. The narrowing of the guidance range mainly reflects the lower sales growth outlook and costs related to the agreed acquisition of Akero and Omeros, partially countered by reduced spending. Novo Nordisk expects net financial items to show a gain of around DKK 2.6 billion, driven by gains on hedged currencies, whereas capital expenditure is now expected to be around DKK 60 billion driven by adjustments to expansion plans. Free cash flow is now expected to be DKK 20 million to DKK 30 billion, reflecting lower-than-expected trade receivables in the U.S. and reduction in capital expenditure. Furthermore, the free cash flow guidance assumed an impact from the acquisition of Akero contingent on final timing of closing. Potential financial impacts related to the potential acquisition of Metsera has not been included. For the coming years, Novo Nordisk has previously informed that the compound patent expiry of semaglutide molecule in certain countries in international operations is expected to have an estimated negative low single-digit impact on global sales growth in 2026. In 2026, the agreed acquisition of Akero is expected to lead to increased R&D costs with an estimated negative impact on full-year operating profit growth of around 3 percentage points depending on the timing of closing. Lastly, Novo Nordisk accepted the Inflation Reduction Act maximum fair price, MFP, for Ozempic, Rybelsus and Wegovy in Medicare Part D for 2027. The estimated direct impact of semaglutide MFP in Medicare Part D had it been introduced first of January 2025, would have been a negative low single-digit impact on global sales growth for the full year of 2025. The MFPs for semaglutide will be effective as of 1st of January 2027 in Medicare Part D in the U.S. That covers the remaining details on the outlook for 2025. Now back to you, Mike. Maziar Doustdar: Thank you, Karsten. Please turn to the next slide. It's been a busy and productive quarter. Throughout the first 9 months of 2025, we delivered 15% sales growth and nearly 46 million people are now benefiting from our treatments. We have also advanced our R&D pipeline, launched a company-wide transformation program and announced a few strategically aligned R&D acquisitions and agreements. With that, back to you, Jacob. Jacob Martin Rode: Thank you, Mike. Next slide, please. And with that, we are now ready for the Q&A, please. [Operator Instructions] So with that, operator, let's take the first question, please. Operator: [Operator Instructions] And your first question comes from the line of Carsten Lønborg Madsen from Danske Bank. Carsten Madsen: I think I'll start -- I have two. I'll start out with sort of a relatively basic question for Mike now that it's the first time you have your sort of a real quarterly conference call here. If we look at your roadshow presentation, you can see that in the combined obesity and diabetes market, the GLP-1 market, you lost 9 percentage points global market share over the last 12 months. That's quite a massive loss of share. We obviously knew about this trend. But still, when you look at what you can actually do in terms of strategic initiatives to turn this around, what is it the intangible initiatives that you are thinking about implementing? You tried pricing in U.S. in Q3. It doesn't really seem to have a sort of a big delta effect on your momentum in the U.S. market. So maybe if you could give some examples. And question two is for Karsten. The acquisitions you have done or are planning to do will lead to sort of a quite significant cash outflow, especially if you get the Metsera. So if you have Akero, Metsera, you have CapEx, you also need to pay dividends next year, I assume. Is there anything you can talk about the capital planning, capital allocation and also how high in the hierarchy is the dividend payout ratio in terms of being extremely important for our investors, of course? Jacob Martin Rode: Very good. Thanks for those two questions. On the first one on market share development and perhaps market growth also will turn to you, Mike. Maziar Doustdar: Thank you very much, Carsten. So as someone who has been part of the commercial organization for so long, then I would not lie and say I don't like losing market share. But our job right now is to focus the company's strategy around diabetes and obesity predominantly because we see a huge expansion potential as we go forward. We are expanding our pipeline through our own activities as well as, of course, acquisitions. We are getting our costs under control to invest and really make sure that no stone is unturned and we're really putting most of our efforts at this point in expanding the markets. There are millions and millions of diabetes and obesity patients out there, including in the U.S. that are not getting their treatments. Launching new products like our Wegovy pill is one way to go get there. Other ways is through increasing our commercial partnerships. You have seen Costco, Walmart, GoodRx, LifeMD, Ro, all of those are ways for us to expand the market and really make sure that through that we succeed and have a successful future. But it does take time for those measures to take effect. It's a marathon, as I have said a number of times now, not a sprint. Jacob Martin Rode: Thank you, Mike. And for the second question on capital allocation, we'll turn to you, Karsten. Karsten Knudsen: Yes. Thank you for the capital allocation question. We have a clearly articulated capital allocation framework, which is invest in the business, provided attractive return, pay out dividend in a consistent manner, do pipeline additions through BD and M&A and finally, if excess cash, do share buyback. So that's our framework, which has remained unchanged for quite a while. And with that, I'm saying that we do have a consistent approach on dividend and have no intention of changing that. The starting point is clearly to convert our earnings into cash flow, which we focus on each and every day. And then looking at value-generating opportunities, both organically and inorganically as in the case with Akero as an example. So I hope that's clear. Back to you, Jacob. Jacob Martin Rode: Thank you, Karsten. And also thanks to you, Carsten, for the two questions. With that, operator, let's turn to the next set of questions, please. Operator: Your next question comes from the line of Peter Verdult from BNP Paribas. Peter Verdult: Two questions, please, for Mike and Martin. Mike, don't shoot the messenger, but there are many people that view your pursuit of Metsera as an implicit signal that the -- or your confidence in the internal pipeline has waned over the past 12 months. My question is, where do you see the clinical differentiation between the assets you're looking to acquire versus a cagri, CagriSema and amycretin. Is it just the multi-dosing angle? Or are there other factors at play? And then secondly, and this is a very simple question. But we've heard overnight from our network that Novo has been contacted by FTC for information relating to Metsera, I know you're not going to go into any details, but can you at least confirm if this is actually the case? Jacob Martin Rode: Thank you, Pete. And on the first question, on Metsera, we'll turn to you first, Mike, and then Martin, you can add on the different assets. Maziar Doustdar: Thanks very much, Pete. I would say, Pete, that I am very excited about our own pipeline. I think we have a fantastic pipeline. But when you have an ambition to go to hundreds of millions of people and treat them, then no pipeline is broad enough. So we have been looking at Metsera for a long time. We are very excited about these assets. The proposal to acquire Metsera really supports our long-term strategy. And it's mainly because these assets are differentiated and complemented to our products and portfolio. That's why we are doing it. I'll pass it on to Martin, who can more easily explain you the differentiation to our own assets, but I would say it works very complementary to what we have. Martin Lange: I can only echo that. What we are looking for is complementary to our pipeline. You've heard us speak to many, many times, obesity is not just one disease, it's many different diseases with many different presentations. Different patients coming in with different age, different BMI, different behaviors, different needs, different body composition and different comorbidities. They have different focus areas. And for us to really serve the full palette of patients suffering for obesity and their comorbidities, we need a diversified pipeline. What we've seen is differentiation and complementarity. And when we see that, then if we can progress that with diligence and in [indiscernible], then obviously, we're interested. Jacob Martin Rode: Thank you Mike. And thank you, Martin. And then on the second question, the FTC we'll turn to you, Karsten. Karsten Knudsen: Yes. So the short answer is that at this point, we don't want to get into any details around the process. It's still TBD where everything lands out. We note that Metsera board assessed our to be superior, and that's what we can relate to. And then I can say as part of this due diligence, as with any other due diligence, we do comprehensive homework in terms of living up to all laws and regulations in order for the deal to close. We always do that, and we did that here also with the assistance and channels of external experts. So we are confident that this deal can close according to regulations. Jacob Martin Rode: Thank you, Pete, for those two deal questions. Let's turn to the next set of questions, please. Operator: Your next question comes from the line of Florent Cespedes from Bernstein. Florent Cespedes: One question, a follow-up. About Medicare, maybe could you share with us your view on Medicare, on one hand, the opportunity if there is a broader coverage of people with obesity on this channel? And the second, about the potential risk or the IRA -- the next step on IRA, you gave some color on the press release about that. So any comments about this opportunity and risk on Medicare would be great. Jacob Martin Rode: Thank you, Florent, for those two questions. For both of those, we'll turn to you, Dave, on Medicare potential and then on IRA. David Moore: Thanks for the question, Florent. The Medicare opportunity is very important to us and something we've been pursuing since we launched into obesity over a decade ago. And we know that there's roughly 30 million people of Medicare age that are suffering from obesity, and that is something that we feel is really important that those individuals have access to anti-obesity medicines. We can't speculate on what the potential is and how many of those patients will be able to reach, but we do see this as a very important development for us. Regarding your second question about IRA. As Karsten mentioned, we gave an understanding of the expected impact in the company announcement as well. And it's not something that we are able to comment on. We are under strict confidentiality with CMS, and CMS will be making the announcement of what those prices are at some point in the near future. Jacob Martin Rode: Thank you, Dave, and also thanks to you, Florent. And let's move to the next set of questions in line, please. Operator: Your next question comes from the line of Martin Parkhoi from SEB. Martin Parkhoi: Two questions. I have to come a little bit back to the question that's getting from Carsten because I think he was a little bit kind to you, Mike, with respect to market share loss because if we look at the your old area IO and look at reported sales, then Lilly have actually done a sprint. They -- 2 years ago, you had a market share of 80% on all GLP-1 sales on reported numbers. And today, you are at 50%. So can you talk a little bit about what has gone, not wrong for you, but what have they done right in IO to basically capture so much more share than you? Is it commercial execution in IO across the countries? Or is just due to product superiority? Why can they sprint and you cannot? And then second question is just on device strategy. A bit of a setback for Wegovy FlexTouch in U.S., you had argued for that to be an important part of flexibility in the consumer channel. What are you -- going to '26, are your device strategy overall also with respect to launch of products in vials and in which market would that be relevant? Jacob Martin Rode: Thank you, Martin. On the first question on IO, I'll turn it over to you, Mike. Maziar Doustdar: Yes. Thanks very much. So a couple of different ways to answer your question, Martin. There are markets that we are clearly competing well and gaining market share within IO and there are markets that we are losing. So it is market dynamics that dictates IO and averages sometimes cloud the picture. In certain markets, take China as an example, the market is not growing as much as we had anticipated. We have said it in the past. It's predominantly because we have never launched a previous version of obesity drugs in that market. At the same time, we have seen in the same market that we're losing in the online battle to our competitor, predominantly because obesity drugs or Wegovy is not allowed to be sold online, while if you have a mega brand, then it's a very different picture. So that's, I would say, for China. If you take a look at some of the European markets, take U.K. as an example. We have seen how our share of growth over a period of 1 quarter has now bypassed on initiation our competitors' numbers. So this is a dynamic market that changes. And it is really to be seen on a longer horizon and not quarter-by-quarter. We still have a patient base more than -- 2x more than our competitor in international operations. The volume strategy and the future potential of international is still incredibly attractive for us. But we came to this market with a very high level of market share, 100% on our own. So losing market share is something that we had anticipated. And as our competitor comes and as we go also into next year, it will not just be Eli Lilly, but also in some of the markets, other players as we lose LOE. So we have to look at this longer term. And when we do look at it longer term, I am incredibly optimistic for the volumes and the level of unmet need that exists in international operations. Jacob Martin Rode: Thank you, Mike. And let's move to Dave for the device question, please. David Moore: Thank you, Martin. Yes. As you mentioned, it's a setback to receive the CRL on Wegovy FlexTouch. Looking into 2026, we are looking at other presentations. This includes vials. It includes other devices that we're thinking about entering into the market, which would lead to more optionality, especially as we continue to grow in the cash channel as well. On the FlexTouch specifically, we are in active dialogue with FDA and working through the CRL, but can't comment on any specific time lines yet at this point. Jacob Martin Rode: Thank you, Dave. Thank you, Martin, for the set of two questions. And let's move to the next question, please. Operator: Your next question comes from Sachin Jain, Bank of America. Sachin Jain: I have two questions please, one commercial, one financial. Commercial on Wegovy pill, just wondering if you could talk about how you're scenario planning around orforglipron pricing given some news overnight and given your API restrictability, your ability to compete on price? And any further color you can give on launch cadence as we think about that launch? And then second one for Karsten, I'm sure you're expecting the question, but the last couple of years, you've given some high-level color on year forward sort of you'd be willing to just share moving parts as we think about '26. A lot of factors there, gross to net in the base, certain IO patents, Akero, consensus sitting at roughly 7% sales, low teens EBIT, so just any high-level thoughts. Jacob Martin Rode: Thank you, Sachin. The first question on oral sema, let's go to you, Dave, in terms of preparedness. Of course, for competitive reasons, we cannot go into any details, but the high-level picture, Dave. David Moore: Yes. Thanks a lot, Sachin. We're incredibly excited as we move closer to the approval date of the Wegovy pill. I think this is a big step forward in terms of expanding the market and for those individuals that align better with taking a pill for their obesity. We can't comment on specific pricing, of course. But what I would say is we are going to have the Wegovy pill available in all channels. And this is different from previous launches because we will have the ability to focus on Medicaid, Medicare and commercial, but also have a cash offering available through all of our different telehealth partnerships as well as our own NovoCare Pharmacy and the retail partnerships that we've aligned as well. This is a new way to launch for us. And we're also thinking about the competitiveness. This is a competitive profile with respect to efficacy and tolerability, and we're really looking forward to bringing this to people living with obesity in the U.S. Jacob Martin Rode: Thank you, Dave. That's very clear. And the second question, we'll turn it to you, Karsten. Karsten Knudsen: Yes. Thank you for that question, Sachin. And I think you actually already captured some of the key elements going into your own question. So the starting point is we do not guide for next year today. We'll come back to guide for next year at a later point in time as we normally do. What I can say is, as always, current momentum is the foundation for future trends in the business. Not saying everything continues, but current momentum is where we start. Then we have a few specific items worth calling out in relation to next year's growth rates. One is this year, we have some gross to net favorability, I would estimate it to around 2 percentage point on group sales growth this year that will not repeat into next year. So that needs to be factored into a growth rate. Then loss of exclusivity in certain IO markets. We've been calling that out for quite some time, including in our release that will have an estimated negative impact of low single digits on next year's sales growth on group sales. Then on sales, Dave was covering the Wegovy pill, which, of course, is our main launch into next year and upon regulatory approval by the FDA. And then the final discretionary factor to call out is Akero and the step-up in R&D costs associated with that transaction pending closing expected later this year. That will have a 3% negative impact on operating profit growth in 2026. Jacob Martin Rode: Thank you, Karsten, and thank you to you, Sachin, for those two questions. Now let's move to the next one in line and those set of questions, please. Operator: Your next question comes from the line of Mike Nedelcovych from TD Cowen. Michael Nedelcovych: I have two. My first is actually a follow-up on Metsera. Martin, can you articulate what specifically about the Metsera agents is differentiated from Novo's own pipeline candidates other than the potential for once monthly dosing? In response to the previous question, you've restated that Metsera is differentiated and complementary, but I'm wondering what public data lead you to that conclusion or if those data are not public, can you confirm that? That's my first question. And then my second question is on the evoke trials. We are now less than a month away from the CTAD presentation. So I'm assuming that Novo has the data in-house and is simply cleaning them up before top line release ahead of the presentation. So my question is, if it is an unequivocally negative result, would Novo cancel its CTAD presentation? Jacob Martin Rode: Thank you Mike, for those two questions. Now let's start with the first one on revisiting Metsera and the view on differentiation from your side, Martin. Martin Lange: Yes. Thank you very much for the question. I don't want to go into specifics, but maybe just to iterate what we're looking at, where we look for complementarity to our pipeline. It's data on efficacy, and those can be differentiated at many levels. It's data on safety and tolerability, a little bit of the same consideration. Its scalability. And then obviously, in this case, the dose in frequency. We, on more than one parameter, see complementarity to our pipeline. And therefore, this is an effective proposition for us. On evoke, I do want to iterate, we do not know the data in-house in this room. If we did, we would actually had to issue a corporate announcement immediately. So no knowledge amongst any of us in this room. Our starting point is to disclose data, good or bad. So we currently aim to present whatever data that we will have at CTAD in the beginning of December. Jacob Martin Rode: Thanks, Martin. That's very clear. And also thank you to you, Mike, for both of those questions. Now let's move to next question, please. Operator: Your next question comes from Harry Sephton from UBS. Harry Sephton: Two on the U.S., please. So just in light of the agreed IRA direct negotiation discounts on semaglutide. And also some of the press reports yesterday on potential obesity Medicare coverage. I don't want you to comment directly, but it appears you'll end up with significantly different prices for your products across different channels. So I wanted to get your thoughts on how you expect that you're able to maintain this segmented pricing by channel? Or should we assume that all prices gradually trend towards the lowest level? And then the second one on the U.S., just on the current U.S. market trends. Can you discuss how you're currently thinking about the levers to improve access and commercial insurance coverage on Wegovy and Ozempic going into next year? Or do you expect that the majority of the 2026 U.S. growth is really going to come from the launch of the Wegovy pill. Jacob Martin Rode: Thank you, Harry. Noted two questions here. I'll send both to you, Dave. The first one on the pricing dynamics and then subsequently on the current access picture. Over to you, Dave. David Moore: Yes. Thank you much. As we mentioned, we can't discuss any of the specifics around IRA or MFN, but we do appreciate the question. And the fact that historically, we have been able to maintain different prices in different channels, given that be Medicaid, Medicare or commercial and now are increasingly expanding cash channel. Of course, we can't speculate what that will mean in the future. But historically, we have been able to maintain the differentiation between those markets and the access that comes with it. To your second question around the trends in terms of the quality of access, it's something that continues to be really important for us as sometimes receiving an obesity medication can be a challenge because of the friction that exists in the marketplace. So we are continuing to push for and invest in improved access. It's a clear priority for us. This includes both our cash offerings. It's also what we do with payers. But we haven't seen a large uptake yet in terms of that opportunity, but it's something that we're going to continue to push for in 2026 access. We don't really expect the access to be largely changed in 2026, but we do know that each of the payers or Medicaid, as we mentioned earlier, have budget constraints and there could potentially be some loss of coverage as well. Jacob Martin Rode: Thank you, Dave, for those two. And also thanks to you, Harry. Let's move to the next question, please. Operator: Your next question comes from Emmanuel Papadakis from Deutsche Bank. Emmanuel Papadakis: A few follow-ups, perhaps. Maybe taking a step back on U.S. commercial channel trends and obesity. Excuse the background noise. Wegovy scripts are pretty much flat since July despite the NASH launch. Even Zepbound has seen most of the growth coming from the cash channel. So talk us through what you think the obstacles actually are to better penetration in that commercial channel? Is it on the demand side due to product profile, lack of demand beyond the motivated minority? Or is the barrier really on the access side, for example, as you referenced potentially insurance companies making it difficult for patients to actually get on or main on therapy? Maybe a follow-up on Metsera, the deal structure and the risk associated with that. Can you just help us understand your comfort with the risk around the way you are structuring your offer? It seems there's a reasonable chance you could end up with 50% of the company you don't control to its ultimate benefit preventing someone else from owning them. So why are you comfortable with that possibility? Or how do you expect to avoid it? And then just a quick clarification on the Medicare access discussions. What would be upper limit discount you're contemplating be? Would that be in line with the MSP or this would be something in addition to that? Jacob Martin Rode: Thank you, Emmanuel. I noted two questions there. On the first one on the Wegovy scriptions, I'll turn it to you, Dave. And on the second one afterwards, on the deal structure, I'll turn to you, Ludovic. But first, over to you, Dave. David Moore: Yes. Thank you, Emmanuel. As we mentioned earlier, the quality of access remains a focus point and certainly a challenge in the reimbursed channel. Of course, we've got that combined with intense competition. And we also mentioned that the compounding is continuing to increase as well. So that focus and investment in the quality of access, we do think is an important factor with respect to expanding the market. And in addition, you'll continue to see our efforts in expanding the cash channel through more partnerships and certainly having our product offerings available in that channel as well. Jacob Martin Rode: Thank you. And now I'll hand over to you Ludovic. Ludovic Helfgott: Thanks for the question, Emmanuel. Well, I think everything stems from, I guess, what you feel is an excitement for the portfolio of Metsera. We really believe in the assets. We believe in the team. And we believe that the deal structure that we have now, which, by the way, as Karsten said, has been vetted and discussed with external councils and experts. And believe that it's in line with all legal standards, boils down to the quality of the asset and the data that we -- and the confidence we have in the data that we have. So of course, we know when you get into such acquisition that this deal will be reviewed, but we're comfortable that even the 50% of the shares that we would have in our pocket would be actually worth a lot if the product stands out to be the way we think it is, products with an edge, by the way, because as you said, Martin, it's a convention of product. So in all cases, as it boils down to science, we believe that we have a good value proposition. Of course, we would prefer at the end to have that in our portfolio from an operational perspective, but the value there, we believe is really, really high in all scenarios. Jacob Martin Rode: Thank you, Ludovic. And now let's turn to the last two questions. For the second last question. Please go ahead, operator. Operator: The question comes from the line of Richard Vosser from JPMorgan. Richard Vosser: First question, Mike, you alluded to more telehealth involvement, particularly in the U.S. I think the prior arrangements, particularly with Hims, have faced challenges given they continue to bulk compound. So there's been some discussion around continuing or new agreements with Hims, but also the wider involvement of the telehealth. So I wondered what was different this time and whether there's any evidence of any increased pressure around from the FDA or legal pressure to remove the compounders and what could change on that front. And then the second question, just you mentioned a couple of times about coverage, maybe even getting a little bit worse in Medicaid and maybe even the commercial payers, the barriers staying high. Well, in that case, how should we think about the pricing? Normally, we think about increased rebate levels and increased pricing should remove barriers to get more reimbursement. So how should we think about that going into '26? Jacob Martin Rode: Thanks, Richard. On the first one, I'll turn to you, Mike, on the telehealth. Maziar Doustdar: Yes. A couple of comments on that, Richard. There's been no increased pressure to answer your question directly. But what we have been quite consistent with regards to the illicit API that is coming from China and being used by compounders, we find -- since these are not FDA approved, their safety is questionable. And as a pharma company, we don't basically like that. That hasn't changed at all. We also have been saying that we need to increase our access and we need to find ways to get to many more patients. The cash channel and eHealth is definitely an attractive way to go about it. In that context, we're having dialogue and discussions with multiple players on how we could actually increase our access and then we will see with who we should go into partnership. We've made a number of those partnerships available. So we talked about Costco. We have talked about EMed. We have talked about Walmart. And ongoing dialogues with many, many more are ongoing in pursuit of our market expansion that I spoke to earlier on. Jacob Martin Rode: Thank you, Mike. That's clear. And for the second one, let's move to you again, Dave, please. David Moore: Yes. Thanks very much, Richard. We continue to have dynamics that we've discussed in the past, continued pressure, both in GLP-1 as well as in obesity with respect to price as we look to unlock more volumes. But I think it's -- I do want to reiterate that the quality of access is a clear priority for us. We are working with payers to make sure that the experience is one that patients are able to receive their medicine more seamlessly. That means lower utilization management, right? That means less of a prior authorization criteria. When we say we're investing in quality of access, that's really what we mean. And that's the focused conversation that we're having with payers. In 2026, we don't really expect a large difference in terms of access in the commercial channel. As we mentioned, there may be some in Medicaid. But when we look at the commercial opportunity, I think it is important to note that we haven't been making progress in terms of the access. We continue to believe that the CVS opportunity remains there, and that will -- we will see Wegovy as the exclusive brand at AOM, at CVS in 2026 as well. Jacob Martin Rode: Thanks a lot, Dave. That's clear. And let's move to the final question before I hand over to you, Mike, for closing. So final question, please. Operator: Your final question today comes from the line of James Quigley from Goldman Sachs. James Quigley: I've got two left, please. So firstly, on REDEFINE 4, how important is this into demonstrating differentiation from a physician and a marketing perspective versus Zepbound? Have you thought any more about how Zepbound could behave in a flexible dosing scenario versus other trials and real-world data? And can you confirm that you still look to launch CagriSema if REDEFINE 4 shows no statistically significant difference? And second one, can you talk through the launch preparations for Wegovy in ex U.S.? I mean you've highlighted in the release and in the comments that you could look to launch in select countries versus previously when it's likely to be mainly focused in the U.S. So what's happened such that you consider also launching in the ex U.S.? And how do you balance this with U.S. launch processes and pricing, et cetera, as we head into an MFN world? Jacob Martin Rode: Thanks, James. That's two. One on the REDEFINE 4 and one on the orals sema in IO. But on the REDEFINE one, I'll turn it to you first, Martin. Martin Lange: Yes, REDEFINE 4. As you well know, we've taken some learnings from REDEFINE 1 more specifically that we needed to do a lumber study. So we amended the REDEFINE 4 study. That being said, our base case has always been non-inferiority with an upside of superiority. In the case of non-inferiority on weight loss, we still see a potential for upside on gastrointestinal side effects and tolerability. But also we do believe that the CV benefits that we know from semaglutide could also potentially pan out and will read out from REDEFINE 3, thus clearly differentiate CagriSema vis-a-vis potential competitors. But I do want to iterate, there is still the potential for superiority upside. But obviously in an amended study, that should be taken with a little bit of a risk. Jacob Martin Rode: And let's turn to you, Ludovic, for the second one, please. Ludovic Helfgott: Absolutely. So let's take a step back. The real focus and the priority of our Wegovy pill launch is the U.S. and will remain the U.S. in 2026. As you rightly read, we are indeed opening -- we've filed, and we are opening the option to launch in selected markets in the course of 2026, depending, of course, on how things are ramping up, and we are definitely ready to -- in this market to be able to make the -- the best and the most of the Wegovy pill. By the way, we're also very quickly transferring some knowledge from the telehealth channels, for instance, in the U.S. into some higher markets. We are very active right now as we speak in many markets across the world, not just in Europe, but also in Australia, for instance, or in other part of the world where we believe that we really are gaining progress on the telehealth side. So again, we're accelerating our overall experience curve on the telehealth and that will be -- we believe will be proven very helpful at the time we launch the Wegovy pill. It's also not worthy to say that the IO market are also markets where we have some of the nicest experience in Rybelsus in Europe and elsewhere, which means that we can also leverage our experience in the oral markets that have been successful for Rybelsus to build even quicker position with the Wegovy pill. So priority to the U.S., but fully ready to take on some selected markets in IO when time comes. Jacob Martin Rode: Thanks, Ludovic. And with that, let's conclude the Q&A session. Thank you for participating, and please feel free to ask in the Investor Relations for any follow-up questions if that's case. Before we finally round off, I'll just turn it over to you, Mike, for some final remarks. Maziar Doustdar: Thank you, Jacob. Thank you to everyone for calling in. Before closing, I did want to make a few remarks. Although we have narrowed the full year outlook for this year and see currently competitive headwind, the unmet need is huge. The volume opportunity longer term in our core area is enormous. We are sharpening our focus on diabetes, obesity and associated comorbidities in order to address this unmet need. This is our home turf, and this is for us to drive the commercial execution and raise the innovation bar to treat many more patients and treat them better than ever before, and we will not stop until we do that. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to Klabin's conference call. [Operator Instructions] As a reminder, this conference is being recorded, and the presentation will be in Portuguese with simultaneous translation into English. [Operator Instructions] I'd like to make a brief announcement for those following us in English. [Operator Instructions] Any statements made during this conference call in connection with Klabin's business outlook, projections, operating and financial targets and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of Klabin. These expectations are highly dependent on market conditions, on Brazil's overall economic performance and on industry and international market behaviors and therefore are subject to change. We have with us today, Mr. Cristiano Teixeira, CEO; Marcos Ivo, CFO and IRO; and the other officers in the company. Mr. Cristiano and Mr. Ivo will start by commenting on the company's performance during the third quarter of 2025. After that, the remaining executives will also be available to answer any questions that you may wish to ask. I will now hand it over to Mr. Cristiano. Go ahead, sir. Cristiano Teixeira: Thank you. Good morning, everyone, and welcome to our earnings call. So on Slide #3, we'll quickly go through a couple of numbers. I brought a few slides for that. So just -- and when it comes to volume, here, we see our sales volume, which was higher due to our higher production. We have 25% more in pulp and 10% more in paper and 7% more in packaging. So this is a very important moment for all of us. But I would like to actually draw your attention to Slide #4. This is -- and this refers to a discussion that we have had recently. For a few years, we've been talking about this since we started the Puma II Project, where the company would be split by [ 1/3 ] between pulp, paper and packaging, so 1/3 each. Obviously, we are preparing the company for its next 10 years, but this is the design that we created when we started investments in this new investment phase starting in 2017. And this is where we are. I would just like to draw your attention to the revenue from the packaging area, which sometimes goes unseen. The company's -- but it is the biggest revenue for the company this quarter. And I'd like to remind you that we are experiencing one of the worst short fiber prices in pulp. There are many ways of analyzing these products that are commodities. One of them is to look at the lowest prices in history and update them based on the U.S. inflation, given that many of the manufacturers are based in the U.S. If we run the numbers that way, we'll see that the prices for pulp and kraftliner are below the historical worst prices with inflation correction, which makes me think that although we are going through a price issue in our curves, these are historical issues that we all know. Despite the fact that we are experiencing the worst time for these products, we are performing very well in our traditional markets, especially paper, and that's the major upside for the company. If we consider the average price of fibers, looking at the historical series that you can all access, we might be USD 100 to USD 150 below the average price for these 2 products I mentioned, so short fiber and kraftliner, which would be an annualized volume through a simple multiplication, meaning if we take our kraftliner and short fiber volumes, we could have at least BRL 1 billion more in annualized EBITDA. That is in Brazilian reais. So I'd like to draw your attention to the fact that this might be one of the most difficult moments the company has ever faced considering commodity prices, and we have had a net margin of 39% and the other businesses in the company have provided stability, which is what we often tell you. And corrugated boxes are playing their defensive role. So now I'd like to bring up Slides 5 and 6. This is something that I've been saying for a while. Our average growth rate in volume versus GDP and paper. So we have been performing above Empapel and the GDP. And when we look at the price, here, we have data from a series of years that we have been working on prices above inflation rates, and that's due to several qualities of the market. Most of our packaging are used in foods and foods have been performing very well in Brazil in the last 10 years. But we're only looking at data since 2019. So prices have also been going up above the Empapel rates and above the IPCA index. But we always have to compare to other companies. And Klabin has twice as much volume as the second biggest company. And there are several other companies ranked third, fourth and fifth. We're still very spread in corrugated boxes. If you look at these companies, Klabin has 5x the volume. So even though we have our performance that is 5x bigger than other companies, we have been outperforming Empapel inflation and GDP, which shows a performance that from my perspective has been flawless throughout this time. And this underscores our flexibility and resilience. So we will continue. Marcos will speak, and we will come back to talk about our dashboard. Marcos Paulo Conde Ivo: Thank you, Cristiano. Good morning, everyone. So on Page 6, since we had higher production, sales volume reached 1,067,000 tons in the period. Net revenue for the quarter reached BRL 5.4 billion, a 9% increase year-on-year. This was driven by the paper and packaging industries or segments, which saw higher volumes and prices. Adjusted EBITDA was BRL 2.1 billion in the third quarter, a 17% increase over the third quarter of 2024 with a margin of 39%, as Cristiano said. This reflects the increase in net revenue and also the effect of the comparison base since the third quarter of last year was impacted by planned maintenance shutdowns. Excluding these effects from the shutdowns, adjusted EBITDA growth would have been approximately 8%. Moving on to Page 7. Total cash cost per ton was BRL 3,104 in the quarter, a 2% sequential decrease versus the second quarter of '25. Compared to the same period in 2024, excluding the effect of the general shutdown for maintenance, cash cost per ton also decreased by 2% consistently. Moving on to Slide 8. Klabin ended the third quarter of 2025 with a net debt of BRL 26.1 billion, a reduction of around BRL 1.8 billion compared to the end of Q2 '25. This is mainly explained by positive free cash flow in the quarter, a receival of BRL 600 million in equity related to SPE [ Immobiliaria ] and the appreciation of the Brazilian real in the period, which affects our dollar-denominated debt. Leverage measured by the net debt to adjusted EBITDA in dollars indicator ended the quarter at 3.6x, a reduction of 0.3x compared to Q2 '25. Moving on to the next slide. The company's liquidity remains robust, finishing September at BRL 12.4 billion. This liquidity consists of BRL 9.7 billion in cash and the remainder in undrawn revolving credit lines. The average maturity of this debt at the end of the quarter was 86 months and the average cost in U.S. dollars was 5.3% per year. Moving on to Page 10. The company delivered solid free cash flow in the quarter with a positive balance of BRL 699 million. This reflects the company's current focus on ramping up production at Puma II, but also focuses on cast and -- excuse me, cost and CapEx discipline with a consequent generation of free cash flow and deleveraging. Cristiano Teixeira: I'll take this opportunity, Marcos, to draw everyone's attention to this slide. As I mentioned, we are stepping out of a long investment period for the company and stepping into a free cash flow generation period in which we try to deleverage the company. Investments are becoming more difficult. So we are taking a look inwards, and this is the new look that the company will have. This level and this pace of generating free cash flow is what we should see from the company from now on. We're quickly deleveraging, and I'm linking here to the average price, as I mentioned before. We are at the worst moment for the 2 most traded products for the company. There's still an EBITDA volume that will still come in due to statistical reasons. And as Marcos mentioned, we have a CapEx discipline, which has been very valued in the last discussions in the last few years. So we feel very confident with our level of CapEx, our operational continuity, the equipment that needed to be refurbished in the company, such as the Monte Alegre boiler, which has been addressed and has made Monte Alegre an cutting-edge side for products and productivity, and that includes cash cost and environmental factors. And Ortigueira, as we know, is a benchmark. It's a state-of-the-art plant in technology and processes. So the company is at a moment in which major investments and the risk of managing and implementing these investments are now past. This risk is in the past. We are ramping up the machinery. We will generate more EBITDA. We are at the worst moment for the curve of some products, as I mentioned. But packaging, for example, has been resilient, and the company will now go through a strong deleveraging process. Go ahead, Marcos. Marcos Paulo Conde Ivo: So continuing on Page 11, the Caete Project, which has greatly strengthened the company's forestry and cost competitiveness continues to advance and deliver results above expectations. When it comes to partnerships with financial investors, especially TIMOs, we raised BRL 3.6 billion, of which BRL 1.5 billion remains to be received. This last contribution is planned to occur by the end of this year. Considering the monetization of surplus land, we completed our first sale in the third quarter of 2025. As a result, we still have approximately 20,000 hectares of usable land that can be monetized over the next few years. Moving on to Slide 12. Earnings distributed to shareholders over the last 12 months totaled BRL 1.3 billion. This amount represents a dividend yield of 5.5%. I'd like to highlight the Board of Directors' approval on November 4 of dividends to the amount of BRL 318 million, which will be paid on November 19. Now I give the floor back to Cristiano, who talk about our business trends. Cristiano Teixeira: Great. So we want to value the last part of the presentation, the Q&A. So we're going through this very quickly, and we'll try to save time for the Q&A. So looking at the market, the first item, pulp or short fiber. We see that inventories for short fiber are building up, and that has favored our price on the last column. We see that prices have been recovering very well. We are not leaders, of course, in this item when it comes to short fiber, but we have been seeing some price recoveries because of the inventories that have been building up as we saw. In fluff, we see some stability when it comes to the market -- or excuse me, some instability when we look at the market. But when we look at the price column, there's some effect from fluff consumption in China, which is moving away from U.S. imports, and we'll have to wait and see what will happen from now on. We'll need to see what happens geopolitically, and we hope that things will normalize soon. The effects from fluff is due to the volumes in the third quarter of 2025 having a carryover effect. So when we look at the normalized rates, we also see stability. Continuing with coated board. Again, this is stable, both on -- from a market perspective, but also with volumes. And corrugated boxes and industrial bags, again, we are at a seasonal moment, and for the fourth quarter, we often see a reduction. Considering prices, this is based on the mix. So we see that harvests are happening in fruit, and this has the best price performance in Brazil due to it being virgin fibers and so on. So we see that the demand will be lower, but I've mentioned some examples in the beginning of my presentation as to why this -- that we're protected against this. So let's continue with the Q&A. Operator: [Operator Instructions] The first question will be asked by Rafael Barcellos from Bradesco BBI. Rafael Barcellos: Cristiano and Klabin team, thank you for taking my question. Cristiano, you mentioned the challenging environment in some markets like pulp. So excluding this market issue that is out of your control, I'd like to explore some questions for the items that are more at your hand. I'll focus on CapEx costs. But here, Cristiano, my question -- we'll leave it open for you to talk about any initiatives that you think can provide value for the company. But I'll focus on cost and CapEx. After some forestry operations, the new boiler in Monte Alegre and so on, are there any cost benefits that you believe we will start seeing next year? And if you can tell us a bit more about how you see costs changing next year? When it comes to CapEx, the company seems to be running at a lower CapEx level versus the guidance. So if you can tell us a little bit more about that? Was that related to any efficiencies that you were able to extract? And what should we consider for CapEx next year, especially considering that next year, you will no longer have that disbursement from the Monte Alegre boiler, which will be about BRL 800 million for this year? Those are my 2 questions. Unknown Executive: Thank you, Rafael. So we can talk about this. We have provided a guidance. I'm going to refer to the company, but I think we set a good example in providing a guidance. When it comes to costs, I've mentioned the Monte Alegre boiler, which will definitely have a benefit. It will make our operation more efficient. There have been other pieces of equipment that were updated, but Monte Alegre is already a reference. I think we've just given a few decades for Monte Alegre to continue to be a reference in cash cost. We will have some marginal benefits, but this is mostly due to these investments. And of course, we have ordinary production and cost figures, but extraordinary events. If we look at the rest of the world, these assets are -- well, this is a very old business, right? There are companies in our industry that have many -- have more than 100 years of history, machines running for over 50 years in some countries as an average. So we've seen increasing extraordinary events with production loss, which, of course, reflects on fixed costs and impacts on volumes as well and price effects. What I'd like to draw your attention to is that Klabin, our main fiber production sites like Ortigueira, which is a global benchmark with 2.5 million tons with the products that you know and Monte Alegre, which has always been a reference. So we replaced an operating boiler, and we've been providing other updates to the plant to -- in order to have stability. So for me, the most important thing is that, well, we have been giving you cost guidance. We've been giving you this space. But the most important thing is that we're providing stability to a site, which is very old, but it's very up to date when it comes to the technology. And that's also going to give the company some price stability. And we're going to continue following our guidance. Concerning CapEx, I'd just like to draw your attention to the investments, the transformational investments that we've made. The cycle is now over with the acquisition of Arauco, construction in Figueira and Monte Alegre. But at the end of the cycle, we still have some disbursements to be made, but there are other items in forestry where we don't still have stability. So we do see benefits, but it's due to the end of the cycle and considers the possibility of having stability. Rafael Barcellos: Of course. And if you allow me to ask a follow-up question, specifically on cost. If I can get an assessment of the performance in the last few quarters. And I'd also like to understand -- well, I know that you're still going to give us a guidance for next year. But I'd just like to understand the magnitude of that. In 2026, will the company be running at a lower cost than 2025? If you could help us understand your cost trajectory and how you think this will happen from now on? Unknown Executive: We're concluding the first phase, I'd say, of our budget process so that we can offer this up for a better debate with the Board. So these numbers are being discussed. What I can say is that, of course, despite some of the situations we have been facing, weather issues, which not only have affected the south of Brazil, but other parts of Brazil and the world. Obviously, these are things that everyone has to face, but we have a platform of areas and average distances that we've been discussing with you. We feel that our implementation of the [indiscernible] project has been very successful in monetizing areas and finding benefits for the management and daily operations always provides the best cost. When we look at this from a quarterly perspective, there might be variations due to the weather and due to these effects that I mentioned. But from a structural perspective, the company's cost platform and all due respect to all manufacturers, but within our own product portfolio, we have the most productive areas in the world. I'm trying not to be too passionate, but to speak about facts. We have the best productivity for pinus and eucalyptus, much higher than the global average. We have been favored by these areas that are closer to Klabin. And when it comes to technology and equipment, as I said, we're closing a huge cycle that places Klabin among the state-of-the-art plants of the world. So of course, as soon as we have more details on the short term for the cost and CapEx, we'll provide more information to the market as soon as this has been consolidated in the company. But the structural responses, looking at the real economy -- we have to refer to that, because in [ AEI ], we are making use of the advantages and productivity that we have in our operations. But the company remains a real-world company. So looking at the real economy, stability and flexibility, the company's equipment and its resources are being placed in forestry and equipment, and this is a global reference. So I apologize, I'm not talking about the short term, but I'm just saying that we're going through the budgeting process. What needs to be known is that in the real economy, the company is absolutely productive. And with long-term contracts, Klabin is positioning itself as a global competitor and maybe that is going unseen. Operator: The next question will be asked by Daniel Sasson from Itau BBA. Daniel Sasson: Cristiano, I really liked your opening speech where you talked about the company being ready to deliver more results in comparison to the rest of the market. The coated board versus kraft spread in importation, I'd just like to ask if at this level of spread, would it make sense to produce 100% of MP28 in coated board value? We know that, of course, this market is much -- much smaller than kraftliner. So are you expecting a better spread in order to do that? So I'd just like to hear this comparison between the cost and the spread in products just so that we can understand the ramp-up for this part. Also, when it comes to corrugated boxes, you've had very strong volumes up to date. The prices are flat, but you're growing in volume and share. But looking towards the future, I'd just like to understand your perspective of this market, considering the reduction in the shavings prices. And what is your commercial strategy for that? Would it make sense to be a bit less aggressive and maybe concede on prices to hold the margins, maybe a value over volume strategy? Or how would you deal with this change and market dynamics? Unknown Executive: Thank you, Daniel. So I'm going to let Soares answer that, and then Douglas will talk about corrugated boxes. Jose Soares: Daniel, thank you for your question. So to answer your question on coated board, we are projecting that we will reach 45% or 47% of machines producing coated board. And why not more than that? As you've been seeing, this market has been challenging in the U.S. and Europe as well. And there's another important factor, which is excess capacity in China. China has invaded the market with very low prices. So going into new markets means that you have to compete with Chinese coated board, and we've been avoiding that. The spread that you mentioned actually disappears when you compare our coated board price. Well, we would need to eliminate that to compete with Chinese coated board. So we haven't done that. We've taken a different route. We've been trying to differentiate our products in the internal market. We launched a new line. We're going into pharmaceuticals, which was a market that Klabin didn't work in. So although there is a premium, volumes are not so expressive. But when we look at the conditions and margins, coated board would be better than competing with Chinese coated board. So we're waiting to see if the global economy, especially in the U.S., gives any signs of a recovery, and that will give us opportunities to go into coated board with profitable conditions. With the conditions we've seen now, it's much better to have white top liner in the machine, which is priced at the same level as coated board. So that gives much better margins than kraftliner. And kraftliner itself in some markets has been providing better conditions than having folding white board. So that's the scenario for coated board right now. Cristiano Teixeira: Soares referred to the American market. So I'd just like to make a comment on that. In the last 2 weeks, I've been speaking to some executives in the U.S. And I'd like to remind you that there are different ways of looking at the economy. The U.S. economy is very strong, as you know, in services, especially. But I'd like to draw your attention to corrugated boxes in the U.S. and its production. The U.S. has significantly reduced in the last 10 years, their production. They're at the lowest in the last 10 years. As you know, this has an impact from e-commerce, but e-commerce still has a very relevant impact to the economy. But the biggest reference in consumption in any country, and this is not different in the U.S. is supermarkets. When we look at supermarkets, 70% of volumes are food products. So this cash expediting is connected to exporting. And it should have reduced more than it is if we consider closedowns in the U.S. due to cash cost. So I don't know if we'll be able to go deep into this during the call, but this has an impact on the short term, especially. On the medium and long term, this is positive for Klabin. But I have to refer to what we were discussing earlier when it comes to the forestry base. At the medium to long term, looking at this reduction in the U.S., we are replacing several products. Kraftliner is one. But I've mentioned that kraftliner, 100% virgin fibers will be at a premium in the future because this will be scarce since it's a niche product. And this will play in our favor in the long term. Douglas will now talk about corrugated boxes. Thank you. Douglas Dalmasi: So about corrugated boxes, we don't see much on the horizon in the short term. So during the last quarter, we saw that the market remains stable and Klabin has been growing over market levels. But about shavings, shaving has been stable. I don't see any relevant changes in price. They're stable. If we compare to last year, it went from BRL 600 to BRL 1,300 or BRL 1,400, and now it's back at BRL 1,200. So it's still stable. It is not changing when it comes to price, and we're still seeing higher prices this quarter or prices growing over the quarters. If we look at the company's price history, we, in the last quarter have increased to a relevant degree, and it has been going up quarter-by-quarter. And now in the last quarter, we still see an increase in -- at a lower pace if we compare to the past because we started this price increase in the last quarter. So again, in the short term, I don't really see any changes. We're growing over the market levels, and we're passing inflation on through the price. Operator: The next question will be asked by Caio Greiner from UBS. Caio Greiner: I have 2 quick questions. The first is a follow-up question after Barcellos question on CapEx. It drew my attention that your numbers in the last 12 months and even the accrued figures for this year are far below the indication that you had for total CapEx this year. So my question is, why is it being slower? Are you expecting to accelerate in the fourth quarter? Or should we imagine that part of this CapEx will carry over to next year as we saw last year? Should we expect CapEx figures for next year to be slightly higher? And the second part of my question or rather my second question is about your CapEx outlook and volumes. We've talked about this in the last quarter, but earlier this year, you went from a growth volume of about 200,000 tons for 2025. And right now, we are at 130,000 tons. But in the fourth quarter, we have maintenance downtimes. So maybe we'll be closer to 100,000 tons, if you can give me that understanding. I'd like to understand what you're imagining for 2026. I've been looking at everything that you've been saying. I understand that for some lines, the market is a bit more difficult. There's an issue of demand in kraftliner and paperboard. But I'd just like to know what you're imagining for 2026. Can we consider one more year of growth to reach those 200,000 tons that you had set during your Investor Day last year? Cristiano Teixeira: Thank you, Caio. Let's start with CapEx. It's true this is normal for the fourth quarter, not for Klabin, but for the industry. The last quarter is when the CapEx requires planning and so on. And we execute this in the fourth quarter usually. We should execute most of it. There is a marginal carryover for 2026. We don't expect higher CapEx in 2026 due to that reason. We're in line with the guidance, and we are confident with what we've been managing here, the company's CapEx, ensuring operational safety, of course, but this is marginal. Structurally, it's like I said in the beginning, we still have some residuals from the boiler, but we are going into a stability period in which we are focusing on operational continuity. That includes plant management, planting and so on. Referring to volume, I'd just like to say one thing, and I'll try to explain myself in the best way possible, but we can explain this offline afterwards if we need to. But you made a reference to the downtime, which is true. This guidance on volume was based on full operations in the recycle -- recycling machines. We always give you updates because we can, considering the market, make choices to use more or less recycled paper in our boxes and to use more virgin fibers for exportation. We had to do this, this year. So we stopped 2 machines that worked on recycled paper throughout the year because export prices were not attractive enough for them. So we gave priority to the internal market and converting more paper through virgin fibers and reduce exports. You can see this because we offset these kraftliner exportations around 45,000 tons per month with the kraftliner from Machine 28. But when we look at containerboard or kraftliner recycled, we have reduced production of recycled paper, and obviously, we've been using more virgin fibers for our boxes. So this is why we're not going to reach the production level that we had mentioned before. Looking towards 2026, Klabin should go in full into virgin fibers. We're very confident with the markets that we're working with, and we still haven't decided what to do with the recycled machines. We're looking at the budget. But depending on how the market behaves, we might continue with downtimes for the recycled machines. So we'll give you more details during Klabin Day. Operator: The next question will be asked by Eugenia Cavalheiro, Morgan Stanley. Eugenia Cavalheiro: I would like to understand leverage. You're close to the upper bound of the range that you had in your leverage policy. So I'd just like to understand if this is something that you're comfortable with, if you would prefer to go to the low end of the range, and I'd also like to understand what the next steps would be for the company either to lower your leverage. I mean, we've seen some initiatives in that direction. And I'd just like to understand if we expect those to continue and how we should understand the company. I'd also like to look at dividends and buybacks, considering shareholder remuneration. I know that you made an announcement, but I'd just like to understand if this will continue or if we are going to get -- change your leverage levels and if that can affect shareholder remuneration. Cristiano Teixeira: Thank you, Eugenia. Marcos will answer your questions. Marcos Paulo Conde Ivo: Eugenia, Klabin has 2 policies. One is for financial indebtedness, which establishes our leverage range. And the minimal leverage established by this policy is 2.5x net debt to EBITDA in U.S. dollars. So we still have a lot of space. And as Cristiano mentioned, due to the harvest cycle and the free cash flow generation in the company, the company will continue to deleverage throughout the next quarters until we get to the lower bound of our policy. So we will continue to deleverage. Considering the dividend policy, we've published a document to help the market to understand how we're doing this, and it establishes that we are making quarterly payments preferably and paying between 10% to 20% of our EBITDA in dividends. And usually, we are at the middle of this policy. This is an announcement that we've made recently that will follow that. And we don't see any reason for that to be changed. Considering buybacks, this is something that we're always looking at. Naturally, it will depend on share prices. It will depend on the project portfolio that we have being executed or being approved. This is all being analyzed. So considering that we are harvesting the investments that we have already made, considering that we don't have any major transformational investments on our horizon, this makes it more attractive, especially when we look at our prices, considering that this is a market consensus. It's a target as decided by market consensus. So this is something that we're analyzing. And of course, we have to look at it so that maybe in the future, we can do something in that direction if it's viable and if it's a good capital allocation decision for the company. Operator: The next question will be asked by Henrique Marques from Goldman Sachs. Henrique Tavian Marques: So my first question is about paperboard. I know that you've discussed this, but we still see strong competition. The domestic market has been very challenging. And according to all signs, as China reviews its 5-year plan, it will continue to export. So this is a significant growth avenue for the country. So I'd just like to know what solutions you find for this market? Is that something that you will do in company? Will you really go to the premium markets even by missing out on some of the volume? And do you think the market should have any protection measures? We know that steel companies are doing that with steel. So that's my question. And also about deleveraging. With this scenario with lower commodities, with the weaker U.S. dollar, is there anything on the macro side that you need to see for this deleveraging to happen? Or can you do all of this in company without needing to depend on pulp prices or changes to the U.S. dollar? Unknown Executive: Thank you, Henrique. So Soares will speak about the advantages that Klabin has with the -- with Machine 28, with the technology and so on. There's still a lot of good things to discuss, but I'll just talk about leverage first. And the answer is no. We don't depend on any macroeconomic conditions. We don't depend on price curves or anything. The company will deleverage strongly because its industrial park is modern, has been up to date. We have capacities. We have orders. To give you an idea of the volume of corrugated boxes that we've discussed, about 70% are in 3-year contracts. You know the contracts that we have, and we're operating at full capacity. Our equipment is up to date, and we're not depending on any macroeconomic conditions. But what may happen is that it can accelerate if the price curves improve, as I said. But even if they are maintained, which is unlikely, deleverage will be very strong. Jose Soares: Thank you for your question, Henrique. So with cardboard -- or excuse me, with coated board, there's no big mystery. You're based on big volumes. You don't need to qualify with the end user, but it's a longer product, which requires a big effort from the technical team. But after it has been qualified, then wonderful. You have a client which is often long-lasting. So that has been our approach to go to new segments, which is a slow process that needs to be continuous. I've mentioned the pharmaceutical industry. We've launched products for frozen foods, cups, white paperboard. So we'll continue doing that. Obviously, we're also depending on the global beer market, which is down. You've seen results for Heineken and Ambev. They had a reduced demand. Milk is also a market that has had different demands. So as this demand changes, we are getting prepared with quality and cost so that we can grow gradually, but don't expect miracles. That's not going to happen within 1 year. It's a gradual process because of how the market behaves. It's fragmented. Volumes are lower, and we need to make a big effort from engineering packages with the end user until you get there. So this is what we're doing. We're going through that routine. And we're tireless at trying to get there gradually. Unknown Executive: Good news, just to confirm what Soares has mentioned. Even though we are not producing the same volume of paperboard in Machine 28, and I'm referring here to the flexibility that we have at Klabin, we are providing very good quality kraft. We really believe in this product, and we're always going to choose based on profitability. This is directed, of course, by our commercial strategy, but we're very disciplined at that at Klabin. We're always going to prioritize our strategic partners and obviously, the company's results. So to answer your question, Henrique, what we're mentioning, the deleveraging that the company will have is for this mix, having less paperboard and more kraft. So that's why we believe the company will be stronger. Operator: The next question will be asked by Marcelo Arazi from BTG. Marcelo Arazi: A couple of questions. The first is about cost again. We've seen that fiber costs have gone up in the last quarters after the acquisition you made for Arauco Florestal, which indicated that you expected these costs to reduce. So what is your perspective on that? And how do you believe this will continue? And my second question is about pulp. Market perspectives are a bit worse. We know that there are structural issues. So we're investing on -- I know that you're investing on price and capacity. So I'd just like to understand your perspective for the industry and how that matches that 1/3, 1/3, 1/3 strategy. So in any case, is this change in the industry changing the percentage that you want to have in each segment? Cristiano Teixeira: Thank you. In order not to take the word again, I'll comment on this. So about the 1/3, 1/3, 1/3 strategy, this is part of the company's strategy. Of course, when we created it, our aim was to give more stability to the company, to be less reliant on commodities, even when it comes to fibers. As you know, 1/3 of this [ 1/3 ] is fluff, which is based on contracts. So this strategic model has been implemented. There is a variation quarter-to-quarter due to the price. When commodities are at their peak, this share will go up. The most important thing is that on relative terms, we're finding more stability with the current model. So Marcos will now talk about cost. Marcos Paulo Conde Ivo: Marcelo, when it comes to cash cost, first, I'd like to highlight that this quarter, we ran it at the lowest part of the guidance for the company. It was at [ BRL 3,104 ]. And this was the third quarter in a row in which we were at that level of guidance. So the message for me is that Klabin in a normalized quarter and a typical quarter will be at the lowest part of the threshold, which is a good perspective for the costs for 2026 because the accrued figures for 2025 have been impacted by this quarter. And there has been a nonrecurring effect. When we look at fiber and wood specifically, the Caete Project, which was the acquisition of Arauco in Brazil has really strengthened competitiveness for forestry and costs in Klabin in the most productive region of the world for pinus and eucalyptus. If you look back, you know that this cost was based on 3 components. First, a reduction in CapEx for buying standing wood from third parties and Klabin had a guidance at the time stating how much CapEx it would spend on buying from third parties. And now we have a new perspective. And you can clearly see a reduction there that has already taken place in 2024 and 2025. So that has been delivered strongly. The next lever was to have financial partners and to monetize our land areas. For that, we are doing much better than we had indicated to the market. We're also delivering this strongly. And the third lever was OpEx. So reducing fiber costs that we see in the company's cash cost, especially due to a reduction in the average distance and operational costs. This is also taking place. As we've been seeing for a long time, and this goes for all companies in the industry, forestry costs are not linear because this changes every quarter. You change the areas from which you're harvesting, there are weather issues. So in Klabin specifically, we try to optimize the cost of wood in the production cycle, the 15-, 16-year cycle for pinus and more than that for eucalyptus. So that means that in the cycle, you're optimizing your wood production costs. So it will be natural to see this change over the quarters, throughout the years. But clearly, the Caete Project will have a very relevant level of value generation for Klabin. Unknown Executive: Thank you, Marcelo. Thank you for your question. So to answer your question about capacity confirmed or in the pipeline to be presented to the Board or approved. Obviously, the numbers surprise us. But in any case, we are keeping an eye on it to see what will be approved. And on the other hand, we believe that the fact that the company is producing 3 types of different fibers means that we're not only exposed to eucalyptus, and that helps us with that context. And this will be a leverage for Klabin. It's a defensive portfolio that will keep our prices stable in the market. But obviously, it's very difficult to talk about the capacity that will go into the pipeline. It's hard to imagine what can happen with prices, but the fact is that the market is adjusting. There's a lot of capacity, at least 100% of the global capacity will have to go through structural changes. Operator: As there are no further questions, I would like to hand the floor to Mr. Cristiano Teixeira for his closing remarks. Go ahead, sir. Cristiano Teixeira: Thank you. Thank you, everyone. We'll see you for the next call. Operator: This concludes the company's conference call. Thank you, and have a good day.
Operator: Welcome to the Dream Industrial REIT Third Quarter Conference Call for Wednesday, November 5, 2025. [Operator Instructions] The conference is being recorded. [Operator Instructions] During this call, management of Dream Industrial REIT may make statements containing forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Dream Industrial REIT's control that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Additional information about these assumptions and risks and uncertainties is contained in Dream Industrial REIT's filings with securities regulators, including its latest annual information form and MD&A. These filings are also available on Dream Industrial REIT's website at www.dreamindustrialreit.ca. Your host for today will be Mr. Alexander Sannikov, CEO of Dream Industrial REIT. Mr. Sannikov, you may now go ahead. Alexander Sannikov: Thank you. Good morning, everyone. Thank you for joining us today for Dream Industrial REIT's Third Quarter 2025 Conference Call. Here with me today is Lenis Quan, our Chief Financial Officer. In the third quarter, we reported healthy operating and financial results supported by strong leasing spreads and robust growth in CP NOI. For the quarter, we delivered 4.3% year-over-year FFO per unit growth and 6.4% comparative properties NOI growth, driven by a 7.6% increase in in-place rents. We leased out over 250,000 square feet of vacancies and newly completed developments, which lifted our in-place occupancy 40 basis points to 94.5%. Our balance sheet remains strong with conservative leverage and ample liquidity. We are advancing our capital recycling strategy across our platform. During the quarter, we completed the sale of 2 nonstrategic assets within the Dream Summit venture, and we are firm on a disposition within the REIT's portfolio. In addition, we are currently underway on approximately $150 million of potential dispositions to user and investor buyers. These dispositions reflect our broader program to enhance portfolio quality and total return profile as we redeploy this capital into accretive opportunities, including higher-quality acquisitions that align with our longer-term portfolio strategy. So far this year, we have acquired over $100 million of infill mid-bay industrial product with a targeted stabilized yield of over 7%. These acquisitions are representative of our broader pipeline and of the asset profile we will continue to pursue. Recently, we completed the acquisition of a 130,000 square foot asset in Germany. The asset was acquired on a short-term sale and leaseback arrangement at market rents, delivering a going-in cap rate of over 8%. The asset is well located, features functional design and has existing rooftop solar panels to support our ancillary revenue program. The asset has undeveloped excess land, which can be activated for outside storage or expansion opportunities. In the quarter, we also completed the acquisition of a 90,000 square foot urban logistics asset in the Netherlands. The asset is within a prime logistics node with scarce supply. We acquired the property vacant and leased out the building within the first month of ownership for a 5-year term commencing in November at rents exceeding our underwriting. We achieved a yield on purchase price of over 8%. This leasing success is reflective of the healthy leasing momentum we are seeing across the mid-bay portfolio in Europe. With over 2.5 million square feet of leases signed to date in our European portfolio, we continue to see healthy demand for our assets and continued rental growth in core urban locations. In Canada, the occupier markets remain active and we see sustained demand in particular for well-located mid-bay infill assets. The leasing spread remained healthy. In our wholly owned portfolio in Canada, we achieved around 40% spreads in Q3 when adjusted for one fixed rate renewal this quarter. This is in line with the spreads we achieved in Q3 2024. We continue to work closely with our tenants as they implement their supply chain adjustments in response to the evolving trade dynamics. Notably, we are encouraged by the level of activity from tenants in the automotive sector. So far this year across our wholly owned and managed portfolios in Canada and in Europe, we signed over 1.8 million square feet of new leases, renewals and expansions, including on a build-to-suit basis with automotive occupiers led by blue-chip multinational names, and that is at an average spread of over 40% with mid-3% contractual escalators. While the RFP activity has been gradually ramping up from early Q2 2025 and our leasing pipeline remains robust, we are seeing longer decision-making time lines, impacting the pace of absorption. And while our in-place occupancy increased this quarter in line with our expectations, longer lease negotiations led to a slight decline in our committed occupancy to 95.4% this quarter. Since the quarter end, however, we have signed or advanced new lease negotiations on over 1.7 million square feet on existing vacancies across the wholly owned and managed portfolios, leading to additional commitments. Turning over to our strategic pillars. Partner capital formation remains a key focus for us as we are looking to grow our private partnerships revenue significantly over the next 3 to 4 years. The capital formation environment is improving as investors are shifting their focus from private credit to private -- to equity investments. We maintain an active dialogue with potential partners across our operating footprint, including in North America and Europe, and are encouraged by the progress we're making. Our solar program is progressing well with 2 completed projects and 5 new projects underway in the quarter. Over the past year, our near-term pipeline has grown significantly, now representing more than 120 megawatts of additional solar generation potential in feasibility or advanced stages. We're making progress on our strategy to upgrade power capacity at select properties across the portfolio for data center uses. We completed preliminary due diligence for 13 sites across Canada that could accommodate a critical load of over 600 megawatts. On 2 of these sites, we advanced deposits to local utilities to secure 105 megawatts of power with phased delivery over the next 2 to 5 years. Concurrently, we're in active discussions with operators and end users to explore potential value creation opportunities with the generated power capacity. Overall, we are encouraged by the progress across our key initiatives, including leasing, capital recycling, new revenue sources, positioning DIR well for the year ahead. I will now turn it over to Lenis to discuss our financial highlights. Lenis Quan: Thank you, Alex. Our business continues to deliver stable and consistent growth. We reported diluted FFO per unit of $0.27 for the third quarter, 4.3% higher than the prior year quarter. The solid year-over-year growth was primarily driven by comparative properties NOI growth of 6.4% for the quarter, led by 8.5% growth in Canada. In addition, lease-up of existing vacancies and newly completed developments contributed to overall FFO growth. Our net asset value at quarter end was $16.74 per unit, reflecting stable investment property values. We continue to actively pursue financing initiatives to optimize our cost of debt and maintain a strong and flexible balance sheet with ample liquidity. We ended Q3 with leverage in our targeted range and net debt-to-EBITDA ratio of 8.1x. To date, we have effectively addressed approximately 70% of our 2025 debt maturities. In July, we closed on the issuance of our $200 million Series G unsecured debentures at an all-in rate of 4.29%. We will swap the proceeds to euros at an effective rate of 3.73% starting December 22, 2025. The proceeds were partly used to repay the outstanding balance on our credit facility with the remainder earmarked towards prefunding our remaining $450 million maturity in December and for general trust purposes. We continue to evaluate several refinancing options to address the remaining debt maturity balance, and are currently observing rates in the high 3% range in the Canadian unsecured market with euro-equivalent debt approximately 20 basis points lower. These rates are about 30 basis points lower than what we were seeing this time last year. We completed the quarter with over $828 million in total available liquidity. Combined with the growing cash flow generated by our business, we are well positioned to fund our value-add and strategic initiatives, including our development pipeline, solar program and contributing to our private capital partnerships. Our third quarter performance demonstrates the resilience of our business, and we remain confident in our growth trajectory for the balance of the year and into 2026. Despite a slower pace of leasing in the first half of 2025 as a result of trade tensions, we have delivered healthy organic growth, supported by increasing in-place rents across our portfolio. Our FFO per unit continued to grow at a strong rate, even though we refinanced over 70% of our 2025 debt maturities early. CP NOI has outpaced the higher interest expense. As our in-place occupancy stabilizes, we anticipate the business to produce even stronger NOI growth driven by contributions from stable to higher occupancy and continued growth of in-place rents. For the remainder of the year, we expect the in-place occupancy to remain stable. With that, our expectation is that the pace of CP NOI growth in the fourth quarter will be consistent with Q3. We also expect that our Q3 FFO per unit run rate to continue into the fourth quarter. As such, adjusting for early refinancing of our 2025 debt maturities, we expect the full year results to be aligned with our previously communicated outlook. Looking ahead, we continue to expect a strong pace of FFO per unit growth into 2026. Our FFO growth expectations for 2025 and 2026 continues to be predicated on current foreign exchange rates, leverage levels and interest rate expectations as well as expected timing of the lease-up of our transitory vacancies. I will turn it back to Alex to wrap up. Alexander Sannikov: Thank you, Lenis. We have demonstrated a solid track record of delivering FFO growth while absorbing a 200 basis point increase in our average cost of debt since 2021. Since then, our FFO per unit has increased by approximately 30%, driven by organic NOI growth, contributions from development, accretive acquisitions, and new revenue sources such as our private capital partnerships business. All of these growth drivers remain intact today, and we expect to continue delivering strong results for our unitholders. We will now open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Sam Damiani of TD Cowen. Sam Damiani: Congratulations on the good results and stabilizing in the leasing market. That's great to see for another quarter. Maybe just to start off, Lenis, just to clarify your comments on the outlook for Q4 and into next year. Just with the same-property NOI growth, are you still expecting it to exceed 6% for this year and next year? Alexander Sannikov: Sam, as you know, we generally don't provide guidance for 2026 at this point, but I'll maybe pass it back to Lenis to clarify on the 2025 outlook. Lenis Quan: Yes. So Sam, we provided the buildup for the full year CP NOI growth in the prepared remarks. I think the commentary was that the growth that we're seeing for Q3 would -- that it would be very similar to what we would see year-over-year for the fourth quarter as well. Sam Damiani: Okay. And so that's clear. And just on FFO growth, you're reiterating your target. But again, your commentary, I think, last quarter was similar or higher growth in '26. Is there any change to that outlook? Lenis Quan: No, no. I think we continue to hold that same outlook. Sam Damiani: Okay. Great. All right. And maybe just on the partnerships. Alex, you touched on that. Can you maybe give us a little bit more color on the progress and sort of status of things as you work toward a potential JV over in Europe? Alexander Sannikov: As you know, capital formation of this nature takes time, and we are in dialogue with lots of strategic partners. I think for us, it's very important or as important to set up the right partnership as it is to set up a partnership or grow that business. So we are pretty focused on the profile of the partnership and where it's going to grow, what potential it has. And that informs the groups that we are in dialogue with. And naturally, that takes some time. But as I mentioned in the prepared remarks, we are encouraged by the progress. And that's across the footprint. We're seeing good progress in North America and good progress in Europe as well. Operator: Your next question comes from the line of Brad Sturge of Raymond James. Bradley Sturges: Just following up on Sam's question there just on the partnerships. I think you talked about maybe being -- seeing a little bit more traction around the greenfield fund or partnership. Is that still the case? Or are you seeing good progress across different types of investment opportunities, including core funds? Alexander Sannikov: Yes. We are seeing most traction, I would say, across the core plus to value-add spectrum of return profile. And the nature of the partnership can be greenfield as we call it, which means we just form capital to pursue new acquisitions, or it can involve some seed assets as we discussed previously. Bradley Sturges: Okay. That's helpful. My other question would be just in terms of capital allocation. Obviously, you've got potentially some capital coming back through asset sales. How would you rank sort of the opportunity set in terms of redeploying into your various buckets of growth? And also your payout ratio continues to trend down. And what would it take, I guess, to kind of see a distribution increase as well as you continue to realize AFFO growth or FFO growth? Alexander Sannikov: On the FFO growth and payout ratio, yes, your observation is very much aligned with ours, but also is aligned with the overall strategy we communicated at the Investor Day in terms of how we think about the distribution policy. So we want to see our payout ratio continue trending down. And over time, we see ourselves implementing a distribution policy that would translate into sustained growth in distributions per unit and that growth will be somewhat lower than the pace of growth in free cash flow so that the payout ratio continues to decline and the free cash flow continues to compound for the business. So there's no change to that broad philosophy, if you will. The only thing that we haven't yet communicated, and it's an ongoing conversation, is the timing of when we're going to implement this policy, if you will. So we'll obviously communicate this to the market, but the business is well positioned as you observed with the Q3 results as well. When it comes to capital allocation, nothing has changed really in terms of how we think about it relative to the prior quarter. We continue to see good opportunities that are proprietary to the business, and that includes investing in our private partnerships, including -- includes our intensification opportunities, whether it's excess land or solar. Some of the acquisitions that we are pursuing and highlighting in the Q3 results are at pretty compelling returns, as you can see. And obviously, we're looking at the unit price and availability of capital as to whether continued NCIB activity would make sense. So all of these opportunities are on the list and we continue evaluating them as we get capital. Bradley Sturges: And just to go back to the distribution comment there. The -- I guess, it's a quarter-by-quarter basis you're reviewing it. And at this point, no decision has been made on that. But are we getting closer, at least, to maybe seeing a more formal policy around annual distribution increases? Alexander Sannikov: We will communicate this as soon as we're ready. It's an ongoing dialogue that we're having with -- obviously with the Board and with the [indiscernible] management team. Operator: Your next question comes from the line of Himanshu Gupta of Scotiabank. Himanshu Gupta: So what are your thoughts on 2026 lease expiries? And any space you're expecting back? What kind of rental spreads should we assume? Alexander Sannikov: We generally don't expect to see material changes to our retention ratio in 2026. Himanshu, as you know, over the last decade, we've averaged at around 70%, 75% pretty consistently. We expect that retention ratio to carry into 2026 without any material deviations. So yes, there will be some space coming back to us, but that's normal course for our portfolio. And as far as rental spreads, as you know, we disclosed the expiring rents in the MD&A and we also disclosed the market rents. So we expect market rents to be consistent with the overall market rents for their respective regions for 2026 expiries. So there's no idiosyncratic space that is coming back to us or that is maturing in 2026. Himanshu Gupta: Got it. And in that context, should we assume kind of like stable occupancy into next year as well? Alexander Sannikov: Generally speaking, yes. We'll provide more color on 2026 outlook in February, as we always do, Himanshu. Himanshu Gupta: Okay. Fair enough. Okay. And then looking at the development project, Whitby development specifically, I think that was expected to be completed this quarter around this time. Is it leased up? Or how is the progress on the lease-up there on that property? Alexander Sannikov: It's getting completed. It's not fully complete. So it still is underway. There's still some work happening at the site. The leasing progress has been encouraging. We see good volume of RFPs for that asset, including for smaller footprint. The asset demises into small units as little as 50,000 square feet all the way up to the full building. And this development is 2 buildings of about 200,000 square feet each. So we see RFP activity for the entire range, and generally are encouraged by the feedback and how the asset is positioned in the market. Himanshu Gupta: Okay. Good to hear that. Alexander Sannikov: [Indiscernible] right now. Himanshu Gupta: Yes. And maybe just a follow-up on this. Is like the new leasing environment relatively softer compared to the renewal activity, would you say? Alexander Sannikov: As we've commented before, we've seen new leasing environment gradually improving throughout the second half of 2025, following a muted first quarter. And that's reflected in the lease-up that you see across our portfolio. That's reflected in our in-place occupancy as well. And the progress on our new developments is reflected in that. So we signed a few leases this quarter within our new developments, both for wholly-owned portfolio and some were managed developments, with good pipeline for the balance. The pipeline has actually improved relative to, let's say, August when we reported last time. Himanshu Gupta: Got it. Just last question. Federal budget was announced last night, big infrastructure spending being proposed. Do you see any read-through for your portfolio or industrial leasing demand in general for that? Alexander Sannikov: Yes. We're obviously digesting the budget as everyone else is in the market. One notable area where we see incremental demand is defense. We have already seen this -- the increased defense spending and increased sort of defense focus translate into incremental demand for industrial in Canada in our portfolio, early signs of that. And we expect to see more of it as this develops. Operator: Your next question comes from the line of Mike Markidis of BMO Capital Markets. Michael Markidis: Alex, good to see, I guess, the progress on the data center initiative. I think you said 2 deposits put down. I was hoping you can help us understand, I guess, stage delivery 2- to 5-year timeline. But how does that work? You put a deposit down. Who actually funds the infrastructure? I guess, I'm trying to get a sense of how the CapEx will build as you continue to get more and more approvals at the municipal level for power. Alexander Sannikov: Yes. So, so far, the deposits that we advanced are refundable deposit. This just secures our place in the queue and allows us to engage with occupiers on definitive time lines with definitive power capacity and delivery schedule. As we advance the infrastructure work for these sites, then it will require incrementally more capital to then have more firm visibility into power time lines. And then -- well, the big capital outlay will be obviously the construction itself. So what our priorities are right now is to secure either a JV partnership or a partnership with an operator or a lease on a powered shell basis so that we can continue investing capital with greater certainty of the revenue side of the equation. Michael Markidis: Okay. And then if it's not -- if it's 2 to 5 years out in terms of stage delivery, does that mean that substantial capital isn't really in the pipeline for 2026 and really 2027 at this point? Alexander Sannikov: Not for 2026. Could be for 2027 depending on how quickly we advance some of these projects. Michael Markidis: Okay. And then just as you're contemplating -- I know a lot of things in there, but it sounds like you want to engage with occupiers on the site. I mean, is this something where you would potentially build on spec basis? Or no, would you have to have a user lined up? Alexander Sannikov: A complete spec development would be unlikely at this point. So we'll want to secure some components of the revenue at least to proceed. Michael Markidis: Okay. Just last one for me before I turn it back. Obviously, a lot of focus on building the private capital partnerships. You said -- you gave us good color in terms of what the demand profile looks like in terms of core and -- core plus and value add. I was just curious. You guys have been pretty quiet in the U.S. ever since forming the U.S. JV. Is that market something that's on your radar screen at all? Or is it highly unlikely in the next 12 to 24 months? Alexander Sannikov: It actually is on the radar incrementally more now than, let's say, earlier this year. For the last couple of years, let's say, we haven't really seen strong opportunities in the U.S., and that's why the partnership also hasn't been growing. We are focusing a little bit more on growing that vehicle now and seeing good reactions from potential investors and also are starting to see more interesting opportunities in the U.S. as fundamentals start improving in certain markets. So I don't expect us to do anything sizable, but definitely incrementally, we're looking at growing that part of the business. Operator: Your next question comes from the line of Kyle Stanley of Desjardins. Kyle Stanley: Maybe just going back to Mike's questions on the data center side. I mean, clearly, data center investment is very topical today. It's -- every second article we see is something about AI or data center investment. Has anything changed from when you first brought this up as a strategy last year at your Investor Day in terms of your desire to invest in this asset class or maybe the pace at which you expect it to become a part of the portfolio, just given this enhanced focus? Alexander Sannikov: We continue to see additional data points that reinforce the thesis. And as you know, we're not buying land to build data centers. We are looking at it, at least for now, more from a highest and best use perspective for existing sites and existing assets. And so far everything we've seen, especially with the level of CapEx that goes into AI facilities or AI powering data centers, is encouraging for the thesis. Kyle Stanley: Okay. Maybe just as you kind of are working through current leasing discussions, has next year's review of USMCA come up at all? Are tenants concerned? Is it maybe impacting the term they're looking at for new leases? Just make any commentary on the impact this is either having or not having at all as you're doing your leasing today. Alexander Sannikov: We are not really seeing that impacting leasing decisions in terms of how occupiers are thinking about their footprints. It rarely comes up as a discussion point. If anything, we've seen a little bit more occupiers recently asking for longer lease terms as they are looking to invest in their space and they need term security. We've seen a little bit more of that over the last 3 to 6 months. Kyle Stanley: Okay. That's encouraging. Just the last one. Recent broker market stats highlighted softness in Montreal. I think this was probably expected and influenced by the Amazon departure this year. Just love your thoughts on the state of the leasing environment in Montreal, how you see your portfolio evolving through maybe the soft patch and when you'd expect that market to firm up a little bit? Alexander Sannikov: Yes. So in Montreal, it's a bifurcation between larger bay and smaller bay, small- to mid-day facilities. We see ongoing demand. And leasing strength and spreads are strong for mid-bay leasing and that's reflected in our stats this quarter. So adjusted for a fixed rate renewal that we mentioned in the prepared remarks, our spreads in Montreal and Quebec were 50%, which are pretty healthy relative to last year or the prior periods. And when it comes to larger footprints, that's where we see more supply. That's -- most of the Amazon sublet footprint is -- or all of it is larger-bay facilities. And we're seeing a bit less demand for those kinds of footprints. And that translates into maybe softness in that segment of the market. Most of our portfolio is addressing kind of small- to mid-bay requirements and is seeing good traction when it comes to new leasing and when it comes to renewals. Operator: [Operator Instructions] Your next question comes from the line of Matt Kornack of National Bank Financial. Matt Kornack: Just quickly on the market rent trajectory. It looks like Western Canada is improving, Toronto is kind of stable and Montreal you're seeing a little bit of pressure, albeit off some pretty lofty highs. So how should we think about -- from your earlier comment, it sounds like you're expecting those levels to kind of stick at current levels. But when should we expect or do you think there is an inflection coming in market rents over the next year or 2? Alexander Sannikov: Well, Matt, broadly we maintain the outlook that market rents are driven by the overall trajectory of availability rates in any given market. And so as we see continued absorption in the GTA, in Calgary and over time in Montreal, we expect to see, obviously, overall availability rates stabilizing and start trending downwards. And that's when we expect to see the inflection point overall in terms of market rent development. In the meantime, and I think it's important to highlight, is, even in today's environment that is arguably softer than, let's say, 3 years ago, we are signing leases routinely with 3%, 3.5% escalators for 3- to 10-year terms. And that continues to be very much part of the leasing equation for Canada. Matt Kornack: That makes sense. And then this quarter, I mean, the hit to kind of committed occupancy was mostly in Western Canada. It sounds like you've got part of that space spoken for, but can you give us a sense as to the dynamics there and the timeline on kind of getting back because you had really high committed occupancy in Q2 in that portfolio? Alexander Sannikov: Yes, dynamics are remarkable. We got indeed some space back, about 100,000 feet in Edmonton, and that was late summer, early fall. And within a month, we relet the entire 100,000 square feet to 2 occupiers, and they will be both commencing in fourth quarter. So that committed occupancy will go -- for that particular asset in Edmonton overall will go back out within a couple of months. Matt Kornack: Okay. That's helpful. And then interesting and a little counterintuitive in terms of the auto demand that you're seeing. What would be the rationale for them taking that space at this point? And is it a relocation or is that new space in the market? Alexander Sannikov: Some of it net new space. Some of it is optimizing their supply chains across North America. Some of it is net new entrants into Canada. For Tier 1 automotive, that's in our managed portfolio, we just signed a 200,000 square foot lease with a Tier 1 automotive group. We've expanded a couple of multinational OEM groups. So it's a range, but mostly driven by ongoing kind of optimization of supply chains when it comes to automotive sector. Matt Kornack: And generally, good credits, I assume. But what sort of terms on those leases? Alexander Sannikov: The terms range from 5 to 10 years, very good credits. So these are Tier 1 –- either Tier 1 groups or blue-chip multinational OEMs. Matt Kornack: Okay. Fair. And then just lastly, a technical one. The tax on the European portfolio, it was a bit higher. It's a little over $1 million this quarter. Is that a new run rate because the euro has appreciated? Or should we expect it to kind of come back down to kind of $750,000 or so? Lenis Quan: So yes, the tax there it's -- there's a little bit coming from the U.S. and a little bit from euro. It's probably a decent -- it's a decent run rate. We would have had maybe some lower credits from the prior quarter. So I would probably say in and around that range is a decent run rate. Obviously, as we grow our income in Europe, that will size accordingly as well. Matt Kornack: Congrats on a solid quarter, guys. Operator: A question comes from the line of Tal Woolley of CIBC. Tal Woolley: Just on the data center strategy, I'm just -- can we call these pilots? Or is this really like the official start of the strategy? Alexander Sannikov: It depends on your definition for pilot. But look, the way we're thinking about it is we are making progress on a few tangible opportunities in terms of securing power. And maybe the official start of the strategy will be as we firm up the revenue model. Then we can credibly talk about how replicable any given project is and then it becomes more of a program. Tal Woolley: And the current sites right now, those are largely vacant assets or development land. Can you just talk a little bit about the current sites you're looking at [indiscernible]? Alexander Sannikov: The 2 sites for which we advanced deposit are both existing assets. They're solid buildings. But the data center potential is far stronger from a return standpoint. We have generally redevelopment rights or very short leases on these sites, allowing us to then tangibly pursue data center strategies for these assets. Tal Woolley: Got it. And then also can you give us an idea of like how we should think about like -- I'm not exactly familiar with like when you guys want to acquire power, like that process and how much it sort of cost to walk through that? Alexander Sannikov: Yes. So when it comes to the process of acquiring power, it's very specific to each utility, specific to each location. That's why we've shortlisted 13 sites. Of the 13 sites, some are getting to power faster. But the rest of the sites are still very much on the list and we are continuing to advance the dialogue there. Look, CapEx really ranges per asset. So what we will do as we firm up the plans for any given site, we will articulate the CapEx, the CapEx phasing and the revenue model to our investors and everyone who follows the company for them to -- for you to understand how we're thinking about it and what's involved. So it's a bit premature to comment on that, but we will definitely provide the details as we make progress. Tal Woolley: Perfect. And there was an earlier question about the renegotiation coming up ahead, and I appreciate you're talking to clients and you're not maybe hearing much from them. I guess I'm just wondering more what is your internal base case about how you guys are thinking about how that might impact leasing activity, given your experience this year? Alexander Sannikov: We think that this longer decision time lines are likely going to stay until there's certainty on that front. What we are seeing though is that decisions are happening. They're just happening at a slower pace. So then our pipeline keeps building and keeps growing. And as it grows to a large enough level, then we will see consistent flow of signed commitments and we can very much operate in that environment. But we expect that longer decision time line phenomenon this year to stay until there's clarity. Tal Woolley: And on the partner capital –- or partnership capital side, has there been any real impediments that you found kind of working through the process right now just in terms -- like is it market conditions or other things that maybe slowed this process down? Alexander Sannikov: There's been a lot of changes for -- in terms of how many global pension funds are organized over the last 12, 24 months, lots of changes in terms of how they think about real estate relative to overall real assets portfolios. And that has impacted capital formation processes broadly. And it's kind of well documented that capital formation time lines have been longer over the last 2 to 3 years than normal. And so we're starting to see that changing. We're also starting to see groups shifting focus back to equity investments from credit investments. And so all of these things are likely going to be helpful for what we are trying to achieve. Operator: Our next question comes from the line of Pammi Bir of RBC Capital Markets. Pammi Bir: You mentioned, Alex, that the pipeline is growing from a leasing standpoint. How much of that 1.7 million square feet I think you mentioned in terms of leases that are in progress, how would that compare to perhaps some of the recent quarters? And how much of that do you see is likely getting done? Alexander Sannikov: I would say it's 50% to 70% larger in terms of deals that are sitting in pipeline. So yes, it is a notable increase. When it comes to the conversion rate -- look, these are all tangible requirements, and so we expect that many of them will convert. It's just a question of time. A lot of groups are being very cautious when it comes to new footprints. They want to -- if it's 3PLs, they want to make sure that they have their contracts secured. When it comes to end users, it takes quite a bit of approvals internally to get things going. There are some leases that we signed this quarter for new developments that have been in negotiations for 6 months. So yes, they do convert, the commitments do get signed. It just takes longer to get there. Hence, the pipeline is growing. Pammi Bir: And then just to clarify, none of that -- or is any of that 1.7 million square feet in your committed occupancy numbers? Alexander Sannikov: No, not yet. Pammi Bir: None of it, right? Okay. And then just coming back to the comment around dispositions, the $150 million. What's the sense of timing here? And if you can maybe just provide some color around the geographic mix? I think, if I recall, some of that might be Saskatchewan. But just if you can provide an update on that, that would be great. Alexander Sannikov: Yes. Indeed, our Saskatchewan portfolio is in our nonstrategic bucket. So we are looking to sell some of these assets or most of these assets over time. There are some user buildings in the GTA within the pipeline as well. In terms of overall time line, we'll expect to see some firm up or even close in the first quarter of '26. Pammi Bir: And then just lastly, on the European JV, I think you mentioned potentially seeding some of that potential JV or JVs with some of your existing portfolio. So how much would you consider perhaps vending in? And what sort of retained interest would you be considering? Alexander Sannikov: I think it's a bit early to comment. What we are seeing generally is more interest in a 50-50 JV in Europe. So from a stake standpoint, that is more likely than any other stake. As far as the quantum of a potential seed portfolio, that is a little bit too early to comment on. Operator: This concludes the question-and-answer session. I would now like to turn the conference back over to Mr. Sannikov for any closing remarks. Alexander Sannikov: Thank you for your interest and support of Dream Industrial REIT. We look forward to reporting on our progress next quarter. Goodbye. Operator: This brings to close today's conference call. You may now disconnect. Thank you for participating, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Kyndryl Second Quarter 2026 Earnings 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 first speaker today, Lori Chaitman. Lori Chaitman: Good morning, everyone, and welcome to Kyndryl's earnings call for the second fiscal quarter ended September 30, 2025. Before we begin, I'd like to remind you that our remarks today include forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These forward-looking statements speak only to our expectations as of today. For more details on some of these risks, please see the Risk Factors section of our annual report on Form 10-K for the year ended March 31, 2025. Also in today's remarks, we refer to certain non-GAAP financial metrics. Corresponding GAAP metrics and a reconciliation of non-GAAP metrics to GAAP metrics for historical periods are provided in the presentation materials for today's event, which are available on our website at investors.kyndryl.com. With me for today's call are Kyndryl's Chairman and Chief Executive Officer, Martin Schroeter; and Kyndryl's Chief Financial Officer, David Wyshner. Following our prepared remarks, we will hold a Q&A session. I'd now like to turn the call over to Martin. Martin? Martin Schroeter: Thank you, Lori, and thanks to each of you for joining us. In the second quarter and first half of the year, we delivered margin expansion, a substantial increase in earnings and strong growth in both Kyndryl Consult and Hyperscaler-related revenue streams. Our trailing 12 months revenue book-to-bill remains above 1, illustrating the quality of our recent signings supporting our future revenue growth. We're reaffirming our outlook for fiscal year 2026, and we're pleased that our internal cash generation and balance sheet strength position us to increase our share repurchase program by $400 million, reflecting our confidence in achieving our fiscal 2028 objectives. Focusing on revenue, even though we successfully signed most of the deals that have slipped out of Q1, our revenue for the quarter again came in about $100 million below what we were targeting. We expected a strong September to drive a sequential uptick in our year-over-year revenue comp that didn't fully materialize. The underlying dynamics are that our growth drivers like Kyndryl Consult and Hyperscaler-related revenue are working well and resonating with customers. We're increasingly working to expand scope in our contract renewals, which has led to longer sales cycles since these large complex deals often involve replacing incumbents or transitioning in-sourced work to Kyndryl. We still expect these expanded scope deals to close before our fiscal year-end. And third, our focus on margin expansion is a revenue headwind for us because we've taken low-margin hardware and software content out of our customer relationships. We estimate that this was roughly a 4-point drag on revenue growth in Q2 without which our constant currency revenue growth would have been positive. You can see the benefit of this strategy in our earnings. We entered the third quarter with a record pipeline that supports second half signings growth and a full year book-to-bill ratio above 1. As a result, we're confident we'll deliver revenue growth in the back half of this year as we're redoubling our efforts to expand our services footprint throughout our customer base. David will walk you through more details on these points, but I want you to keep in mind the following: we're entering the second half of the year with a larger revenue contribution from our committed backlog, including less of a headwind from having removed hardware and software content. We have incremental growth opportunities from Kyndryl Consult and the Hyperscalers and customer demand is driven by IT modernization, AI and cybersecurity. We're also operating with a clear long-term mindset, all fully aligned with our triple-double-single fiscal year '28 objectives, and we remain on track to achieve them. In fact, they represent the culmination of the strategy we've been executing powerfully over the last 4 years. With our accounts initiative, we focus on removing unprofitable content and fixing unprofitable relationships. During this process, we kept adding more gross profit to our backlog even as we were shrinking our revenues. We also began investing in Kyndryl Consult capabilities in our alliances, driving scope expansion with existing customers and our ability to add new logos. You've seen the growth in Kyndryl Consult and in Hyperscaler-related revenue streams as a result of these investments, and that momentum is continuing. We then turned our attention to signings growth, which drove our last 12 months revenue book-to-bill ratio above 1, a level we've maintained for 5 consecutive quarters now. And this has brought us to a spot where over the last 12 months, we're generating constant currency revenue growth aside from the estimated effects of removing hardware and software content. And the next step is for the content removal headwind to dissipate and the consultant Hyperscaler growth to continue so that we're routinely delivering total constant currency revenue growth. It's in this context that we believe the strategy we deployed is working despite the near-term revenue pressures we faced in the first half, and we're well positioned to deliver growth in the second half on our way to our triple-double-single fiscal year '28 objectives. On today's call, I'll provide a deeper dive into the multiple growth drivers available to us, including infrastructure modernization. I'll also discuss how agentic AI will both be an operational and a go-to-market tailwind for Kyndryl. Before diving into the near-term opportunities, let me first highlight areas where we're already seeing profitable revenue growth. Among signings, our fastest-growing practices have been apps, data and AI and digital workplace. Our strongest geographies have been Canada, Spain, India and Latin America, and the projected pretax margin on our total signings continues to be in the high single digits. Kyndryl Consult revenue has increased 32% in constant currency over the last 12 months and is now running at an annual pace of $3.4 billion. And our Hyperscaler-related revenues have doubled since last year, and we're tracking above our initial $1.8 billion fiscal 2026 target. Our excellence in service delivery is foundational to our growth strategy. Our innovative and outcome-based approach to managing, modernizing and optimizing complex technology estates drives significant value for our customers and fuel share of wallet growth opportunities. Simply put, customers entrust us with more work because they appreciate the quality of what we already do for them. We deliver our mission-critical services through Kyndryl Bridge, our AI-powered operating platform. With Kyndryl Bridge, our delivery teams and our customers run on a single open platform for monitoring, managing and securing their IT estate end-to-end with an unprecedented level of real-time observability. Kyndryl Bridge now performs more than 186 million automations and generates 15 million actionable insights each month, making Kyndryl an ever more indispensable enabler of mission-critical services. And we have more than 100 partners integrated on the platform, including Cisco, NVIDIA, Oracle, SAP and ServiceNow, providing real-time observability that spans applications, databases, networks, mainframes and clouds across multiple technology vendors. As a result, Kyndryl Bridge, combined with our knowledge of our customers' infrastructure, dramatically reduces risk. It enhances security. It sets guardrails and accelerates problem solving. It has solidified our reputation as the gold standard for infrastructure services. It's a key driver of our top-tier customer satisfaction and of how we're able to regularly win new scope during contract renewals. It's also a key driver of the $875 million of annual savings that our advanced delivery initiative is generating. Our capabilities position Kyndryl the hardest secular trends like AI, cybersecurity risks, cloud migration, modernizing complex hybrid IT environments and industry-wide skill gaps. Our alignment with these trends is allowing us to drive future growth in multiple ways through expanded partnerships with our alliance partners, through scope expansions and new customer wins through mission-critical infrastructure expertise through incremental Kyndryl Consult engagements that leverage our technology-first mindset by uncovering new opportunities with insights from Kyndryl Bridge and our recently launched agentic AI framework and by capitalizing on the widespread enterprise need for infrastructure modernization that spans all 6 of our global practices. I want to double-click on one of our growth vectors, infrastructure modernization. Our expertise in modernizing mission-critical systems and our deep rooted customer relationships are key drivers behind the double-digit growth we're achieving in Kyndryl Consult and the additional managed services scope we regularly take on. As AI adoption accelerates, large enterprises are under increasing pressure to address tech debt and modernize their mission-critical systems. We hear this from our customers every day, and modernization now extends far beyond just updating front-end applications. Organizations need to transform IT environments to meet the rigorous demand of AI-driven operations, addressing evolving cyber threats, maintaining regulatory compliance and leveraging new technologies. Our experience and innovative solutions uniquely position us to help customers manage tech debt and deploy AI at scale. We know that nearly half of IT systems are at or near end of life, and all this tech debt represents a substantial opportunity for us, especially since most organizations use third-party providers for modernization. In fact, our annual mainframe modernization survey showed that enterprises that have modernized their mainframe applications or migrated selective workloads to other platforms are realizing a two to threefold return on their investment. This underscores the tangible value of IT modernization and driving operational efficiency and business growth. Kyndryl is a trusted services partner that only runs but also transforms and sustains our customers' most vital IT assets. Relatedly, we're both using AI in our own operations and enabling customers to deploy AI in their businesses. For starters, our service delivery through Kyndryl Bridge features advanced AI. Leveraging machine learning, Kyndryl Bridge proactively identifies risks before they impact operations. AI-driven recommendations empower our teams to resolve issues in real time, while our intelligent AI agents streamline knowledge discovery and accelerate incident response, building greater efficiency and resilience across the IT environments we manage. Our customers also need help with their own efforts to build and deploy AI agents using open source tools. By combining our infrastructure-first mindset with our deep systems expertise, we've created a dynamic agentic AI framework for our customers. Our framework incorporates a distinctive design process, specialized tools and an innovative engagement methodology that blends agents within complex IT environments to drive business process innovation and productivity. The Kyndryl ingestion agent uses company documents, procedures and data and goals to develop a comprehensive organizational process map. And with this as context, the framework's agent builder capabilities allow the organization to design, test and launch AI agents to streamline workflows in accordance with relevant security and compliance standards. In other words, we help enterprises turn AI ambition into scalable transformation. And the demand runway is clear as roughly 25% of our signings already contain AI-related content. We're working with insurance companies, banks, manufacturers, health care providers and government agencies to deploy AI agents to streamline processes, deliver real-time analysis and expedite decision-making. Our agentic framework will help accelerate our customers' AI adoption and drive incremental opportunities for us going forward. To look at one example of how we're driving growth with a long-standing customer in the APAC region, we identified an opportunity to leverage our strong relationship to expand the scope of our work to the customers' operations in the Americas. Building on the trust we've earned through consistent delivery excellence over many years, we successfully displaced an incumbent service provider in the U.S. and won the assignment to manage the customer's mission-critical IT estate globally. Under our new contract, we'll be modernizing our customers' environment to enable global synergies and AI enablement while enhancing security and reliability. This modernization will migrate virtualized workloads to the AWS cloud and the entire tech stack will be supported by automation and observability from our Kyndryl Bridge platform. And importantly, this expansion will drive an increase in our revenues from this account of more than 25%. Expanding and winning new scope in our accounts is a key factor behind our positive financial trajectory in fiscal 2026 and beyond. As a reminder, by fiscal 2028, which for us begins less than 17 months from now, we expect to deliver more than $1 billion in adjusted free cash flow. We expect to deliver more than $1.2 billion in adjusted pretax income and achieving these earnings and cash flow targets only requires us to reach the mid-single-digit revenue growth that will progress toward by 2028. With strong conversion of our earnings to free cash flow, we're optimizing our capital allocation by investing in organic growth opportunities, deploying more capital to shareholders through our increased share repurchase program and occasionally pursuing tuck-in acquisitions. In fact, we just announced that we've agreed to acquire a midsized cloud services provider in Europe. Importantly, our fiscal 2026 outlook is consistent with our expected growth trajectory from fiscal 2025 to fiscal 2028. As David will discuss, we'll continue to expect to generate approximately $550 million in free cash flow this year to grow our adjusted pretax earnings by more than 50% and to deliver 1% full year constant currency revenue growth. Keep in mind, 2/3 of our P&L this year will come from our higher-margin post-spin signings, the first time that a significant majority of our revenue is coming from contracts that we signed as independent Kyndryl. As we've discussed before, the investments we've made in our expanded capabilities and partnerships are opening new doors for us in terms of increased share of wallet and our ability to win new logos. We've won 450 new logos over the last 4 years, and there's more opportunity in the market today, and we have a robust pipeline of deals in the works. As a result, I'm enthusiastic about our ability to pivot to a second half that we expect will be demonstrably stronger than our first. And with that, I'd like to pass the call over to David. David? David Wyshner: Thanks, Martin, and hello, everyone. Today, I'd like to discuss our second quarter results, the solid margins at which we're signing customer contracts and our outlook for fiscal year 2026. In the quarter, revenue totaled $3.7 billion, down 1% from the prior year quarter on a reported basis and 3.7% in constant currency. We continue to gain momentum in higher-margin advisory services. Kyndryl Consult revenues grew 25% year-over-year in constant currency, which underscores how we're expanding our share in this higher value-add space. Our Q2 signings, as expected, dipped year-over-year, primarily because of the exceptionally strong Q2 we had last year. That said, our last 12 months signings total of $15.6 billion was 104% of our last 12 months revenue, giving us a book-to-bill ratio above 1. As Martin mentioned, we continue to see particularly strong signings growth in our applications data and AI and digital workplace practices, reflecting strong demand for services in these domains. Earnings in the quarter were solid as more and more of our revenues coming from higher-margin post-spin signings. Our adjusted EBITDA increased 15% year-over-year to $641 million, and our adjusted EBITDA margin was 17.2%, up 250 basis points year-over-year. Adjusted pretax income grew 171% to $123 million, and our adjusted pretax margin increased 210 basis points year-over-year. Our 3A initiatives continue to be an important source of margin expansion and value creation for us and remain integral parts of our operational and go-to-market approach. Through our alliances, we generated $440 million in Hyperscaler-related revenue in the second quarter. This puts us on track to exceed the 50% growth in Hyperscaler-related revenue that we targeted at the beginning of the year. And other alliances from Cisco, Dell and HPE to Databricks, Rubric and Palo Alto Networks are also fueling our ability to offer cutting-edge hybrid solutions to our customers. Through our advanced delivery initiative powered by Kyndryl Bridge, we continue to drive automation throughout our delivery operations, incorporate more technology into our offerings, reduce our costs and increase our already strong service levels. It's a win-win for Kyndryl and our customers. We've been able to free up thousands of delivery professionals, and this is worth roughly a cumulative $875 million a year to us, representing a $50 million increase in our annual run rate this past quarter. Our accounts initiative continues to remediate elements of contracts we inherited with substandard margins. In the second quarter, we increased the cumulative annualized profit from our focus accounts by $25 million to $950 million. I can't emphasize enough what an important source of sustainable value creation this has been for us. In short, our strategic progress is driving our earnings growth. Turning to our cash flow and balance sheet. We generated free cash flow of $22 million in the second quarter. Our net capital expenditures were $125 million. Working capital was a use of cash in the quarter, driven by the timing of receivables and vendor payments that we expect to reverse in the back half of the year. We've provided a bridge from our adjusted pretax income to our free cash flow as well as a bridge from our adjusted EBITDA to our free cash flow in the appendix. Under the share repurchase authorization we announced last November, we bought back 2.9 million shares of our common stock in the quarter, 1.2% of our outstanding shares at a cost of $89 million. And yesterday, we announced a $400 million increase in our share repurchase program. The expansion of our buyback capacity reflects the confidence we have in our earnings trajectory and cash flow growth as well as our commitment to distributing cash to shareholders. Our financial position remains strong. Our cash balance at September 30 was $1.3 billion. Our debt maturities are well laddered from late 2026 to 2041, and we had no borrowings outstanding under our revolving credit facility. Our target has been to keep net leverage below 1x adjusted EBITDA, and we ended the quarter well within our target range at 0.7x. We are rated investment grade by Moody's, Fitch and S&P. On capital allocation, our top priorities are to maintain strong liquidity, remain investment grade, reinvest in our business, including through tuck-in acquisitions and regularly buy back stock. I remain enthusiastic about how Kyndryl is poised for future profitable growth by maintaining an LTM book-to-bill ratio above 1 and commanding attractive margins on our signings. The September quarter was a continuation of us winning business with healthy margins. Throughout fiscal 2023, '24 and '25 and now into the first half of fiscal 2026, we've signed contracts with projected gross margins in the mid-20s and projected pretax margins in the high single digits. Therefore, as our business mix increasingly shifts towards more post-spin contracts, you'll continue to see a significant margin expansion in our reported results. We've again included a gross profit book-to-bill chart that illustrates how we've been creating and capturing value in our business. With an average projected gross margin of 26% on our $15.6 billion of signings over the last 12 months, we've added nearly $4 billion of projected gross profit to our backlog. Over the same period of time, we've reported gross profit of $3.2 billion. This means we've been adding more gross profit to our backlog than our contracted book of business has been producing in our P&L. Having a gross profit book-to-bill ratio above 1 at 1.2 over the last 12 months demonstrates how we're growing what matters most, the expected future profit from committed contracts. It also highlights the quality of our post-spin signings. And with our gross profit book-to-bill ratio having been consistently above 1, that means that we've been consistently growing our gross profit backlog over the last 3 years. As we've said previously, our core financial goals are to grow our revenues, expand our margins, increase our earnings and generate free cash flow. Our outlook for adjusted pretax income this year continues to be at least $725 million. This means growing our adjusted pretax income by at least 50% and increasing our adjusted pretax margin by roughly 150 basis points year-over-year. As a reminder, it also means we're calling for a third straight year of substantial margin expansion, and it keeps us right on track to generate high single-digit adjusted pretax margins in fiscal 2027 and fiscal 2028. We continue to estimate that our adjusted EBITDA margin in fiscal 2026 will be approximately 18%, an increase of roughly 130 basis points versus fiscal 2025. We also continue to see opportunities to drive efficiencies in our operations, both through advanced delivery and in SG&A functions. In fact, our enterprise services headcount is down 8% from where it was a year ago. On the topic of cash flow for the year as a whole, we're forecasting roughly 100% conversion of adjusted pretax income less cash taxes into free cash flow. With cash taxes of roughly $175 million, this implies free cash flow of approximately $550 million. Our outlook for constant currency revenue growth in fiscal 2026 continues to be positive 1%, which implies revenue growth of 4% to 5% in the second half. We're redoubling our efforts to drive this growth by aggressively seizing the multiple avenues for growth that Martin described earlier. Our plan for stronger second half growth is straightforward. Revenues from our opening backlog of already signed contracts for the second half are 1 point stronger than our opening backlog was for the first half. We've anniversaried our divestiture of a small business last year, which helps our second half growth compared to the first half by the better part of a point. We've invested in incremental Kyndryl Consult resources so that Consult revenue, which is now a larger portion of our revenue base, continues to grow well into the double digits, contributing an incremental 2 points of growth. We're growing hyperscaler-related revenue more than we initially planned as we increasingly market solutions to customers hand-in-hand with our alliance partners, producing a 2-point benefit in the second half compared to the first. And the larger pipeline of deals we have for the second half is adding incremental revenue, both because it's larger and because of our emphasis on building additional scope into our customer relationships. This will also contribute approximately 2 points of incremental growth. A key theme that runs throughout these growth vectors is that enterprises' needs for IT modernization, their desire to invest in AI and their concerns around cybersecurity are all driving incremental demand for our mission-critical expertise and services. Looking at the third quarter in particular, we expect to deliver positive constant currency revenue growth and for our adjusted pretax income to be 15% to 25% higher than the $160 million we reported in last year's third quarter. In addition, we remain committed to delivering significant margin expansion and generating free cash flow growth over the medium term. We have a solid game plan to drive our strategic progress, and this game plan starts with the steps we've already taken to expand our technology alliances, realize the numerous growth opportunities available to us, manage our costs and earn a return on all of our revenues. Sometimes investors want to confirm the favorable math that's associated with our forecast to more than double our adjusted pretax income from fiscal 2025 to fiscal 2028, combined with our share repurchase program. And the answer is yes. With our income tax expense projected to be in the 25% range, our forecast implies that we'll generate adjusted earnings in the fiscal year after next of roughly $4 per share. To wrap up, we're well positioned for success as a leading provider of mission-critical enterprise technology services, driving thought leadership in our space, delivering modern hybrid IT solutions, growing our Kyndryl Consult presence rapidly, achieving top-tier service levels and customer satisfaction scores and operating at the heart of secular trends that will fuel customer demand for our services for the foreseeable future. So let me end by again thanking the tens of thousands of Kyndryl's around the world who are powering our progress. With that, Martin and I would be pleased to take your questions. Operator: [Operator Instructions] Martin, are you ready for questions? Martin Schroeter: Yes. Thank you, operator. Operator: Our first question comes from Jamie Friedman at Susquehanna. James Friedman: Congratulations on a strong quarter. I wanted to ask something about the capital allocation opportunities for the company, $725 million of adjusted pretax income is your target for the year and the free cash flow of $550 million. So it gives you a lot of optionality on the capital allocation, which is attractive to the investment thesis. So just trying to figure out from your perspective, what the priorities are from the capital allocation side? Martin Schroeter: Sure. Thanks, Jamie. So and thank you for joining this morning and for the nice comment. I'd say a few things. Obviously, we're investing in our business in the form of CapEx, and we'll continue to do that. And we're also investing in new capabilities and then accelerating our capabilities. And you saw that this morning in the form of our -- now pending acquisition of Solvinity in the Netherlands. And then outside of that, obviously, because we do see very strong cash flow growth, we see an opportunity to return capital to shareholders. We started last year with a $300 million share repurchase, and then we followed that up this year with an increased approval from the Board for a $400 million share repurchase. So I think going forward, we have those same opportunities. We'll continue to invest in the business. We'll continue to accelerate our lead in certain areas where we see opportunities in the form of tuck-in acquisitions, and we'll continue to return capital to shareholders. James Friedman: And then just for my follow-up, I wanted to ask about AI. I know you had some comments last night in your prepared remarks about AI. I think that there's some reference that 25% of the workloads, maybe that's the wrong word, but the number might be right, are informed or delivered through AI. So Martin, a high-level perspective on how AI may inform the competitive position and mind share of Kyndryl going forward? Martin Schroeter: Yes. Thanks, Jamie. So just to make sure we have the number clear in your head. We said in our prepared remarks this morning that about 25% of our signings have AI-related content all ready. And for us, we do AI-related work primarily in our cloud practice and our digital workplace practice and obviously, in our apps data and AI practice. And our AI-related work is focused on data architecture and data migration services that allow our customers' AI models to operate. We have in digital workplace services, obviously, AI-enabled solutions that our customers are consuming. And then we also do, obviously, cloud migration work to enable our customers to adopt AI. And then finally, we have some development agentic AI development that our customers are starting to consume now. And that gets them ready for AI that helps modernize their infrastructure so that they can turn their AI pilots into scaled components of how they run their business. So it's focused on those practices. The other thing I'd say is it's pretty broad-based. We work with insurance companies and banks and manufacturers and health care providers and government agencies as well on deploying agents now because they're really trying to transform -- they're trying to transform their business processes. And obviously, these are very complex IT estates, and that's why Kyndryl Bridge is such an important part of this because it gives them the data they need and the visibility they need to how their business processes are working. And that, again, extends our lead our competitive advantage in these mission-critical workflows. So yes, about 25% of our signings now have that form of AI-related content. Operator: Our next question comes from James Faucette at Morgan Stanley. James Faucette: On your CapEx and acquisitions, you've been pretty clear that you plan to do some tuck-in acquisitions. But can you give a little more color on the kinds of things that you're looking for? And maybe give us a sense of what those valuations look like? And how should we think about allocation to CapEx and acquisitions versus buybacks? Do you have a targeted level or range that we should be thinking about? Martin Schroeter: Sure. Thank you. And thanks for joining. When we -- when I think about the 2 acquisitions we've done so far, I'd say that they have sort of common characteristics. First and foremost, they are very much in -- they are very much part of what we do today, right? We are the world's largest infrastructure services provider. Our acquisition a couple of years ago was focused on moving power architecture on to Microsoft's cloud, very squarely in the middle of how we operate, and it gave us the technology and the IP we needed to help accelerate our customers' move to the cloud. So everything about that is what we do today. It was just a way to accelerate. Solvinity today is, again, it's a managed private cloud sort of a structure where in all over the world, and we see this in our surveys, all over the world, people are worried about sensitive workloads, about regulatory requirements, about cloud sovereignty. And so what this allows us to do is, again, what we already do, we advise, we implement, we manage clouds on behalf of our customers, both private and hybrid. And this is now another step into the sovereign world for us in Europe. So they all have this consistency around what we do today. It's -- again, it's either accelerating what we're already doing or allowing us to move into a very specific part of the market in this case, again, Sovereign Cloud in Europe. And this is about -- look, it's about the right size for us. It was EUR 100 million. You'll see that in the Q later today, it was EUR 100 million purchase price at a reasonable kind of a multiple. So when it -- we would expect it would close probably late our fiscal year, first half next calendar year sometime. And again, we're not looking to change who we are. We're trying to stay -- we will stay focused on mission-critical infrastructure services. With regard to other capital allocation, how to think about it, I think the 2 data points now that you have that we've given everybody on, for instance, on share repurchase are starting to form a pattern. That doesn't mean -- that we can't do something differently if the market changes, but we do view our stock as a pretty good -- as a very good value here. So last year at $300 million, it was sort of what I'll call a trailing the cash flow generation of the business. This year at $400 million, again, it's trailing the cash flow of our business. So as we grow, we obviously have opportunities to continue to increase that, but we'll do it more on a trailing basis, so we keep the flexibility that we need within the business. We keep the strong balance sheet we have, et cetera, et cetera. I'll ask David if he has anything he wanted to add to that. David Wyshner: That's right, Martin. When we -- in terms of capital expenditures, in particular, we expect those to be around 4% to 5% of our revenues over time. The substantial majority of that is to support our customers' infrastructure and IT needs, call it, 3 to 4 points out of the 4 to 5. And the remaining point is really related to our needs as a corporation with more than 70,000 employees around the world. So that's how we get to a 4% to 5% of revenue number. When we think about our free cash flow, it's actually calculated after our capital expenditures. So those CapEx are, if you well funded by -- before we get to the free cash flow that can be deployed elsewhere. And as Martin was saying, I think about us being able to pursue both share repurchases and tuck-in acquisitions. It's not an either/or for us, and you could see that in our announcements yesterday and today, where we announced both the share repurchase authorization increasing and the tuck-in acquisition of Solvinity. James Faucette: That's great. And then just quickly, can you give a quick comment or summary of how you're finding customer decision cycles right now? Do they seem about normal? Or are there any movement in those sales cycles? Martin Schroeter: They seem fairly -- they seem normal to me. I think what we are experiencing is not that they're changing. It's just that as we move to add new scope as we add new customers, there's a tendency given what we do and the mission-critical nature of what we do, there's a tendency to be cautious, and there's a tendency to make sure that everything is right because these have to go well. That's true whether it's a new customer and it's true if you're just adding new scope. We obviously have renewals that we're doing, but in the substantial majority of cases, there's new content coming in. We had an example in our prepared remarks this morning that shows how we grow within our accounts. So I don't see any difference in decision-making from our customer standpoint, but I do see that because of what we're -- how we're growing and the new capabilities we're bringing in, there's -- just a consistent level of care because they have to go well, these mission-critical relationships have to be perfect all the time. Operator: Our next question comes from Tien-Tsin Huang at JPMorgan. Tien-Tsin Huang: Just on the -- just thinking about the revenue, I appreciate the second half discussion and Martin, you said demonstrably stronger second half. But I'm just thinking about the $100 million in revenue below expectations and with the September month and the deal slippage, the revenue conversion then doesn't that push out put greater risk in the second half relative to what you thought in the beginning of the year? Or is that being made up with some of the incremental consultant resources that you also discussed in the prepared remarks? Martin Schroeter: Yes. Thanks, Tien-Tsin. Look, there are, I think, some things we -- obviously, we know, as we sit here today, and we tried to lay this out, David, at the tail end of his remarks, we know that we enter the second half with a contracted backlog that is in a better position, and we also know that we wrap on a divestiture we did last year. So the starting point in the second half is a couple of points stronger than what the first half was, right? So we know that. There is certainty around that. We also know that the demand profile in our consult business and our investments in our capacity will deliver an acceleration in the second half. And that's fairly -- it's fairly evenly split in the third and fourth quarter. And our momentum in the hyperscaler business -- the hyperscaler-related business, there's real momentum here. It's supported by what we see in our customers' cloud growth and we see that continuing as well. And then the last piece is -- and maybe this is part of what you're trying to really, really get to. Yes, we have a stronger pipeline than we had. And yes, the content within that pipeline has a slightly nearer-term realization element to it because of the way these deals are shaped and constructed and because of what's in them. So they could move. As we've always said, we're better at predicting the year in which something signs than the quarter in which something signs. And we don't need to sign all of them, obviously, to deliver. But these -- my experience is that these -- the renewals, the scope expansion, all these deals, they can shift quarter-to-quarter. They're not likely to shift year-to-year. So with what we know, again, second half starting point is an improvement from the first half. The investments in the demand and our ability to meet the demand we see in Consult drives an improvement. The hyperscaler-related businesses do have a lot of momentum and continue to have a lot of momentum. And then the deals we're working on just have stronger near-term content. So I feel good about how we start the second half. Operator: Our next question comes from Ian Zaffino at Oppenheimer. Ian Zaffino: Just on the pipeline, very strong here. Maybe tell us what verticals or geographies have been particularly strong. Also, when we talk about like expanded scope or content, can you maybe give us an example or 2 about that? And also in this pipeline, what sort of confidence that this is going to close and be converted? Martin Schroeter: Sure. I'll start with the verticals, and then we'll go to an example. On the verticals, I'd say retail and travel and TMT, technology, media and telecommunications have been the strongest for us. Financial services has been okay in terms of levels of activity. And perhaps not too surprisingly, given uncertainty out there in the market, I'd say industrials and the public sector have been probably a little bit on the lighter side among our verticals. And then in terms of examples, I think the -- there are a number of them. There's one we talked about, the financial services firm example that we walked through where we're actually doing multiple things. The first is that we're expanding what we do into a different geography for a multinational firm. The second is that we're taking on additional work. And the most typical form that's going to take for us is a situation where we're running historical or legacy elements of the infrastructure ones that we often have been involved in for multiple years. And now with the freedom of action we have as an independent company, we're expanding into areas that are beyond that, hyperscaler-related activity being tops on the list, additional cybersecurity content being common. We're doing often more network-related activity for our customers as well. And the pitch associated with this is really about us being an end-to-end solution provider, which is something that customers really value in their provider of mission-critical IT services, because it reduces the number of, I guess, potential air gaps and finger pointing that can exist and it drives efficiency, it drives faster problem solving. It drives accountability. And it plays to our strengths in terms of our ability to convene all of these capabilities in one spot in a way that really provides great outcomes for our customers. And what we're seeing is really strong customer satisfaction and even stronger service level achievement as we expand the range of services that we're providing to customers. So we view the strategic thrust is that we have of building additional scope into our customer relationships as a real win-win. It's key to us growing our revenues, but it also helps us provide even better quality and scope and scale of services to our customers in a way that helps them meet their business objectives. Thank you, operator. I think the queue is empty. So I do want to thank everybody for joining us today. As you can see, our strategy is driving results. It's creating new growth opportunities for us. We are seeing consistent progress across our business in consult and the hyperscaler work that we've spent a fair bit of time on today, but also in modernization and our AI work. We have a disciplined approach. We are certainly managing for the long -- for the long term, and we are confident in our ability to achieve our financial goals including driving revenue growth, expanding margins, increasing earnings and generating strong free cash flow and creating lasting value for our customers and for our shareholders and of course, for the Kyndryls around the world as well. So thank you, everybody, for joining. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to the Sinclair Broadcast Group's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Chris King, Vice President of Investor Relations. The floor is yours. Christopher King: Thank you. Good afternoon, everyone, and thank you for joining Sinclair's Third Quarter 2025 Earnings Conference Call. Joining me on the call today are Chris Ripley, our President and Chief Executive Officer; Narinder Sahai, our Executive Vice President and Chief Financial Officer; and Rob Weisbord, our Chief Operating Officer and President of Local Media. Before we begin, I want to remind everyone that slides for today's earnings call are available on our website, sbgi.net, on the Events and Presentations page of the Investor Relations portion of the site. A webcast replay will remain available on our website until our next quarterly earnings release. Certain matters discussed on this call may include forward-looking statements regarding, among other things, future operating results. Such statements are subject to several risks and uncertainties. Actual results in the future could differ from those described in the forward-looking statements because of various important factors. Such factors have been set forth in the company's most recent reports as filed with the SEC and included in our third quarter earnings release. The company undertakes no obligation to update these forward-looking statements. Included on the call will be a discussion of non-GAAP financial measures, specifically adjusted EBITDA. These measures are not formulated in accordance with GAAP, are not meant to replace GAAP measurements and may differ from other companies' uses or formulations. Further discussions and reconciliations of the company's non-GAAP financial measures to comparable GAAP financial measures can be found on our website. Please note that unless otherwise noted, all year-over-year comparisons throughout today's call are presented on an as-reported basis. Let me now turn the call over to Chris Rip. Christopher Ripley: Good afternoon, everyone, and thank you for joining us. Let me begin on Slide 3 with our third quarter results. We delivered strong performance and met or exceeded guidance across all key metrics. Total revenue of $773 million came in higher than the high end of our guidance range. Core revenues was up 7% year-over-year on an as-reported basis. Most notably, adjusted EBITDA of $100 million exceeded the high end of our guidance range. This reflects our operational discipline and continued focus on cost management across the business. Turning to Slide 4. I'm pleased to report significant progress on our station portfolio optimization within our Broadcast segment, which drives immediate operational efficiencies. As of today, 11 partner station acquisitions have closed. 12 have received FCC approval and are awaiting final closing. 10 are filed and pending SEC approval, and we plan on -- we plan to file several additional partner station acquisitions by year-end. Once all current and planned partner station acquisitions are completed, we expect to generate at least $30 million in incremental annualized adjusted EBITDA with minimal upfront capital requirements. We expect to reach the full run rate EBITDA benefit by second half of 2026. Moving to Slide 5. I want to address the evolving regulatory landscape and its impact on our industry. Recent decisions by the FCC and federal court rulings have created a more constructive M&A environment for broadcasters. The elimination of restrictions on Big Four local market ownership enables highly accretive consolidation opportunities that were not possible before. We anticipate the SEC may raise or eliminate the 39% nationwide ownership cap in the first half of 2026, which would further remove barriers to value-creating transactions. These regulatory changes came at a critical time. The broadcast sector is facing secular challenges within linear TV while having a unique opportunity for significant consolidation. We believe the industry is at an inflection point where scale and operational efficiency will increasingly separate high-performing companies from the rest. Against this backdrop, in mid-August, we launched a strategic review of our broadcast business and an evaluation of a potential separation of ventures to optimize value creation across our portfolio. Under the new regulatory regime, we have already executed several transactions, including partner station acquisitions and select acquisitions and divestitures. Given the magnitude of the opportunity ahead, let me spend a moment discussing what broader industry consolidation could potentially look like and why we believe it represents a transformational opportunity for the sector. The broadcast sector is ripe for consolidation given the various secular and economic challenges we collectively face. Based on our analysis and industry benchmarking, synergies from broadcast combinations typically come from 3 primary sources: Distribution revenue optimization, corporate overhead rationalization and the creation of multi-station markets where permitted. One potential path for industry evolution could involve consolidating into 2 similarly sized scale broadcast groups, creating another group comparable in size to the large broadcast combination announced in August, could unlock an estimated $600 million to $900 million in annual synergies through mergers and subsequent portfolio optimizations. This level of consolidation would strengthen the industry's financial footing and position broadcasters as more capable competitors to big media and big tech. Equally important, it would help safeguard local, independent and diverse news coverage that communities across the country rely on. While we present this as one potential industry scenario rather than a prediction, the fundamental point is clear. The regulatory environment now enables transformational consolidation that can benefit Broadcast Group shareholders, creditors, employees and the communities we serve. Sinclair is well positioned in this environment, and we're actively evaluating how best to participate to maximize value for our stakeholders. Let me now turn the call over to Rob to discuss our political revenue outlook and provide an update on EdgeBeam before we turn it over to Rinder to review the financial results and provide the outlook for the business. Robert Weisbord: Thanks, Chris. Turning to Slide 6. We are providing an early outlook for what we expect to be a record-breaking year for midterm political advertising revenue in 2026. Based on current pacing and early conversations with political buyers, we expect political advertising revenue to be at least equal to our 2022 record of $333 million for a midterm election year. Several factors support this outlook. Highly competitive Senate race in North Carolina, gubernatorial race in Nevada showing early spending momentum, significant races in battleground states, including Maine, Michigan and Ohio as well as our strong station footprint in key competitive districts. Looking ahead to 2028, we are preparing for what should be one of the strongest political cycles in recent history. It is expected to be the first dual open presidential primary since 2016, historically a high revenue environment for local broadcasters. Let me provide a brief update now on next-gen broadcast. In late October, the FCC unanimously adopted a Notice of Proposed Rulemaking or NPRM that proposes giving broadcasters greater flexibility to transition away from ATSC 1.0, which would free up significant spectrum capacity for next-gen TV services. Most notably, the NPRM proposes eliminating the substantially similar programming requirement and allowing stations to sunset their ATSC 1.0 signals which will open significant spectrum capacity to drive improved video offerings and data casting use cases that EdgeBeam is commercializing. We're encouraged by the commission's proactive approach and look forward to working with the industry to advance the transition to ATSC 3.0. Turning to EdgeBeam, our joint venture with our broadcast peers, CEO, Conrad Clemson, is actively expanding the leadership team and securing strategic commercial partnerships. We're particularly excited about an upcoming product showcase with a major automotive manufacturer at CES in January, and we look forward to sharing more concrete progress metrics on future calls. Now let me turn the call over to Narinder. Narinder Sahai: Thank you, Rob, and good afternoon, everyone. Turning to Slide 7. During the quarter, Ventures received $2 million in cash distributions while making approximately $6 million in incremental investments. Our Ventures segment ended the quarter with $404 million in cash. This cash position provides strategic flexibility. While primarily designated for ventures investments and opportunistic shareholder returns, Ventures cash could also support transformative transactions in our broadcast business as regulatory conditions continue to improve. Slide 8 highlights our current capital structure with $526 million in consolidated cash at quarter end. In early October, we redeemed the final $89 million of our 2027 senior unsecured 5.125% notes at par. With this redemption complete, we have no material debt maturities until the end of December 2029, enhancing our financial flexibility as we execute on strategic initiatives. In addition, we expect to close on a 3-year $375 million accounts receivable or AR securitization facility at our Local Media segment as soon as practicable this month. This AR facility will further enhance our flexibility to pursue strategic consolidation opportunities and optimize our balance sheet. Turning to Slide 9 and our consolidated third quarter results. Let me walk through the key drivers of our strong performance. Total advertising revenue came in close to the high end of our guidance range, driven by momentum across most categories with year-over-year growth accelerating in September as the NFL and college football seasons kicked off. Distribution revenue also tracked toward the high end of our guidance range as subscriber churn modestly improved at key MVPDs versus our forecast. Consolidated media expenses came in below our guidance, driven by lower-than-forecasted engineering, digital and sales-related costs due to cost containment initiatives and deferral of certain expenses forecasted in the quarter. These results drove adjusted EBITDA of $100 million, 22% above the midpoint of our guidance range. Capital expenditures at $22 million were $5 million below the midpoint of our guidance range due to the deferral of certain projects. Turning to Slide 10 to examine the financial results by segment. Distribution revenue came in at the high end of our guidance range in our Local Media segment, driven by improving subscriber churn, while core advertising revenue beat guidance. As I mentioned earlier, most categories started to show improvement throughout the quarter, particularly as the NFL and college football returned in September. Both media expenses and adjusted EBITDA were favorable to our guidance ranges for Local Media. Tennis channel results were broadly in line with our guidance ranges on both total revenue and adjusted EBITDA. On Slide 11, we introduce our consolidated fourth quarter 2025 guidance. As a reminder, the fourth quarter of 2024 included $203 million in political advertising revenue during the presidential election cycle, which will obviously not reoccur this year. Note that we do not incorporate any anticipated or pending M&A activity into our guidance and year-over-year comparisons are on an as-reported basis. Media revenue is expected in the range of $809 million to $845 million, which reflects the anticipated year-over-year decline in political advertising revenue as we cycle against the strong 2024 presidential election year. Core advertising revenue is expected in the range of $340 million to $360 million, up more than 10% year-over-year at the midpoint of the guidance range as we are seeing momentum continue in most advertising categories. Distribution revenue is expected to be in the range of $429 million to $441 million. Due to the light renewal cycle in 2025, the rate escalators do not fully offset traditional MVPD subscriber losses, though we are seeing improving churn trends at several key distributors and continued virtual MVPD subscriber growth. Consolidated adjusted EBITDA guidance of $132 million to $154 million reflects our continued cost discipline. Before we open for questions, I want to provide preliminary thoughts on full year 2026 on Slide 12. While we'll provide full guidance on the fourth quarter call in February, I believe it's valuable to establish baseline expectations now for key revenue categories and capital expenditures. Obviously, this is not exhaustive, but covers the primary drivers of our 2026 outlook. As Rob mentioned earlier, we expect 2026 political advertising revenue to be at least comparable to our strong 2022 midterm election year performance of $333 million. The current competitive landscape in our key markets suggests we are well positioned to potentially exceed this baseline. For core advertising revenue, we expect to deliver flat to low single-digit growth year-over-year. Strong political revenue expectations will drive crowd out as it ramps in the back half of 2026 and macroeconomic headwinds could pressure certain categories. However, we remain well positioned given our strong ratings and broadcast advertising's proven effectiveness. We anticipate meaningful ratings growth for our network partners as several major live sporting events are taking place on broadcast next year, such as the FIFA World Cup, the Winter Olympics and a full year of the NBA on NBC. For distribution revenue, 2026 will be a lighter renewal year with no traditional MVPDs up for renewal. As a result, we expect relatively flat gross distribution revenue year-over-year, assuming stable churn levels comparable to those experienced in 2025. Note that our preliminary outlook does not include incremental contribution from partner station acquisitions that we plan to close in the near future, which would provide upside to this baseline expectation. However, 2027 represents a significant opportunity with most of the traditional MVPD subscribers up for renewal. Successful execution on these renewals will drive meaningful revenue growth as updated rate structures take effect. It is worth noting that 3 of our Big 4 networks are up for renewal in late 2026, where we have a significant opportunity to improve our reverse retrans economics. We expect 2026 capital expenditures to remain consistent with 2025 levels. This expectation reflects maturing cloud infrastructure investments and the operational efficiencies from our technology transformation. Our disciplined capital allocation enables us to direct more free cash flow toward debt reduction while enhancing our broadcast facilities and strategic capabilities. These preliminary views represent what we believe are prudent baseline expectations. We will provide full 2026 guidance when we report our fourth quarter 2025 results in February. One additional item to note, beginning with our 2026 guidance in February, we will shift to an annual guidance framework, replacing our current quarterly guidance approach. This change reflects our focus on long-term strategic execution, particularly given the inherent quarterly variability in our revenue streams. We'll continue providing annual guidance on key metrics and update that guidance when warranted by material changes. We will maintain quarterly commentary on business trends during our earnings calls to keep you informed of our progress. This approach enables our stakeholders and investors to focus on the fundamental drivers of sustainable and long-term value creation. So in summary, 2026 represents a substantial opportunity for us to demonstrate the cash-generating power and operating leverage of our business model during a political cycle. This strong cash generation will support delevering while allowing us to advance our strategic initiatives. I will now turn the call back to Chris for some closing remarks before we open the call to Q&A. Christopher Ripley: Thanks, Narinder. Let me wrap up with our key takeaways on Slide 13. Earlier this quarter, we launched our comprehensive strategic review of our broadcast business and began work to separate Ventures. We continue to believe that significant value to all of the industry's stakeholders can be achieved through consolidation of the major players as the evolving regulations create unprecedented opportunities across the sector. I want to welcome our new Ventures' Principal, Craig Blank, who has been tasked with managing exits in our minority investment portfolio while also sourcing new majority investments that will help drive strong risk-adjusted returns as we enhance our investment strategy and optimize our portfolio management. Our third quarter results underscore the strength and resilience of our business model. We exceeded guidance across all key metrics with adjusted EBITDA 22% above our guidance midpoint, driven by operational discipline and improving trends in core advertising. We further strengthened our balance sheet by retiring the final $89 million of our 2027 notes, leaving no material maturities until December of 2029. Our fourth quarter guidance anticipates continued improving trends in core advertising and seasonally high higher distribution revenues and our 2026 preliminary outlook anticipates record midterm political revenue, continued progress on our operational initiatives and substantial free cash flow generation that will further strengthen our financial position. We are as optimistic as ever about the opportunities ahead for both Sinclair and the broadcast industry. Thank you for joining us today. Rob, Narinder and I are now happy to take your questions. Operator: [Operator Instructions] Our first question is coming from Dan Kurnos with The Benchmark Company. Daniel Kurnos: Obviously, nice print guys. Chris, a little off the wall for you maybe, but since YouTube was so noisy last quarter, just do you have any high-level thoughts on what's going on with sort of YouTube, Disney right now and just the broader ramifications for how these things are going to end up playing out in the MVPD universe? And then one for Narinder, now that you finally had a little bit of time to get your hands behind the wheel here, it looks like you've done a great job already on the expense side. I know you're going to leave no rock unturned, but just how much more would do you think you have to chop here from an efficiency standpoint? Christopher Ripley: Thanks, Dan. YouTube has obviously become a very significant player in the industry. And as I'm sure you referenced and you remember, last quarter was a source of some disappointment on the distribution side. And some of that is definitely reversing out, and we expect that to improve into fourth quarter because as you remember, there's a lag. So the people coming back for football, most of that benefit we will start to see in fourth quarter -- near the end of the fourth quarter. But more importantly, YouTube and the rest of the virtuals, we've talked a lot about. And as you know, there's currently a blackout going on between Disney and YouTube TV. So we and many others are caught in this dispute between Disney ABC and YouTube TV. More accurately, it's 2 media giants, right, Disney and Google. And what's been occurring with the virtual MVPDs and specifically this situation is a more recent phenomenon. And that we, as local broadcasters have no say in whether our content and the content we pay to air will be distributed to local viewers. This was clearly not the intent of the Communications Act and seems to be, from our perspective, an antitrust issue as well. This dispute and others like it continue to hurt local viewers and local journalism -- the ecosystem of local journalism. So as we and many broadcasters have discussed with the SEC and antitrust regulators, we believe this practice needs to be stopped. Disney, ABC and other networks should not be able to dictate to us whether we can or cannot distribute content to YouTube TV or even Hulu and Fubo, which coincidentally are now also owned by Disney. And the FCC has opened an investigation into hurtful network affiliation practices, and we're seeing those hurtful practices play out in front of our eyes as viewers are missing local news and local sports, particularly concerning is that consumers are now being forced to buy more streaming services from one of the parties in the dispute to get the content that they literally already paid for. We call on Congress, the FCC and antitrust regulators to further review this and stop the harm to local broadcasters and local viewers. Narinder Sahai: Yes. And Dan, to address the second part of the question on the cost structure. Let me first say that the team here has done a fantastic job so far even before me getting here on just working on the cost and making sure that we are very, very prudent in our investments and continue to realize returns on those investments. And this would not be an exaggeration if I said we have one of the best teams here. Having said that, continue to have conversations across different functional areas since my arrival here. And I think people are happy to have those conversations with me. They're having those conversations with open mind. And we're looking at all of the different options in front of us to see how best we can continue to go to market in terms of what we have in our top line. Those conversations are continuing. We are in the middle of our business planning exercise, budgeting exercise. And I think we'll have more to share, maybe a more fulsome update to share in our fourth quarter call in February. But rest assured, it's team is fully engaged, and we are working through that. Operator: Our next question is coming from Aaron Watts with Deutsche Bank. Aaron Watts: I've got 2, if I could. The first, I'm hoping you could talk a bit more about the core advertising environment for your local stations. It looks like it was down around 5% in the third quarter, but has the potential to be up in 4Q. Aside from the crowd out in the prior year, what's driving that improvement sequentially, whether that's select categories or other items? And any early thoughts on what that signals for station core ads in the new year? Robert Weisbord: Yes. So with our categories, all key categories are either up or flat versus a year ago, and it's sequential improvement from third quarter. And we started seeing that help come about in September. And I think you can attribute it to the growth that you see higher ratings across all live sports. The World Series just had a record viewership for Game 7 with $25 million. The Chiefs-Bills game that just happened last weekend was the second highest viewed game of the year. And there's a big appetite from the advertising community to buy into live sports. And it always helps as the network sell up early with double-digit CPM growth and the local broadcasters are benefiting from the sellout in the network and that need both locally and with national advertisers buying into live sports. Christopher Ripley: So look, I would just add on to that, that obviously, what we saw late in Q3 and should be helping Q4 is a lifting of the uncertainty around the economic situation that was first sparked by tariffs. And so that's definitely helping us pick up pace. And as you saw in our prepared remarks, we're expecting Q4 core to be up 10%, and we're also expecting 2026 to be a positive growth year. Aaron Watts: Okay. That's helpful. And then if I could, one more. There have been reports that the NFL may look to open up negotiations on its media rights early. Extending the runway with the most popular content on TV seems like a clear positive, but we've also heard concerns around that, including the potential for increased rights payments, digital outlets taking more games, the risk of a broadcast network maybe being left out, et cetera. Curious if you view that potential early opening of the rights as a positive or a negative development for you and the TV broadcast universe. Christopher Ripley: So while we can't predict exactly the outcome, I think from our perspective, it's an early renewal when I weigh all the puts -- potential puts and takes is undoubtedly a positive. One of the biggest questions we get from investors is what happens when the NFL rights expire or the outcomes around for some of these deals? And what's being discussed are significant extensions of the rights into the back half of the 2030s, which would give the industry a lot of certainty. And I think that would be very positive for the industry. And having a renewal this early ahead of potential expirations, I think, also is to the advantage of the incumbents who have the existing rights because they'll have so much term left on their existing deals. So it's hard to imagine an early renewal where an existing broadcaster gets left out. I think what's more likely to happen is that a new package gets created. So one thing that's been speculated on, which I think makes a lot of sense is 9:00 a.m. window opens up and international games are played every week as you saw a lot more this year. And that international game could be sold as a separate package to a streamer, for instance. And that would increase the total take for the NFL. And then in terms -- and so I think if that was the outcome and there was maybe one less game in the regional packages with Fox and CBS, I think that's a perfectly fine outcome for the broadcasters. And I think it just would be very politically challenging, not only from a Washington, D.C. perspective, but also from a reach perspective, if the NFL were to actually move wholesale away from broadcast. So I think you add all that up and a scenario like I just outlined is probably the most likely outcome of an early renewal, which I think is a very big positive for the industry. And in terms of paying more, I -- we'll have to see how that process rolls out. All of the media companies are currently monetizing their NFL content in both broadcasting and streaming. And I think one of the strongest arguments we have on our side in any of those discussions on programming is that there's still a very lopsided contribution for paying for that programming on the streaming side. So to the extent that you're monetizing in both, which everyone now is, the burden of the increased costs will have to be borne by streaming and not by broadcast. And we saw that play out in our last renewal with NBC, where we did not pay more because the NBA came to NBC. And we think that was the right outcome, but we're very happy to have the NBA. So I think you add up all those dynamics, we'd be very appreciative of an early renewal. Robert Weisbord: I think when you also look at this is the NBA returning to over-the-air broadcasting this year, we'll have a full year next year. If you believe the rumors, which I actually believe the rumors that MLB is coming back to NBC as well off of the cable channels that there is this rebirth because of the reach of over-the-air and not having to pay and not having to use passwords that it is the most attractive place to drive it, and you're seeing record ratings. And don't forget that the college football championship will be coming back to over-the-air on ABC in 2027. So all points showcase from here forward is that over-the-air is the place that these major sports are coming back to. Operator: Our next question is coming from Steven Cahall with Wells Fargo. Steven Cahall: Chris, we've talked about your vision for some of the remaining more levered broadcasters to consolidate. And I know you think there's meaningful synergies there. So what needs to happen for those discussions to kind of move aggressively if they haven't already? I think there's some control issues there that maybe could be sticking points. So what do you see as the biggest obstacles to getting 1 or 2 of those parties into a transaction that's to everyone's benefit? And then do you need a transaction in order to separate local from ventures? Or do you think that those 2 businesses are in financially appropriate places for the separation to proceed regardless of whatever else might happen with consolidation on the local side? Christopher Ripley: Sure. So look, there are precedent setting transactions that are currently being processed through both the FCC and antitrust DOJ. So I do think getting a positive outcome there, which is what I fully expect will happen, will be very helpful in moving the broader consolidation along. I do think, generally speaking, volumes will pick up when those precedents are set because it derisks any future transactions for others. And so that's one element. You did note of the remaining public broadcasters, they're all control companies. So certainly, there are social control issues to be figured out as well. In terms of our strategic review and the separation of ventures, our ideal process would be to do a simultaneous merge and spin. But we certainly don't view that as an absolute requirement. And just by our math, just the spin alone would unlock over $1 billion of value. So it's well worth doing absent a merger, but a merger and a spin together create the maximum value. So that is our first choice. Steven Cahall: And then just a follow-up for Narinder on the 2026 core outlook. I think core was down about 5% in 2022 in the last midterm. And it looks like you expect -- we all expect this midterm to probably be better than 2022. So can we kind of infer that the incremental sports returning are kind of making up for the 5% that core might have been down in the last midterm to get you to your guide for '26? Narinder Sahai: Yes. I think that's the right way to think about it, Steve. Obviously, we expect 2026 to be a record political year. And so the offset there is 2 parts. One is obviously sports returning. But that has to be combined with execution on our part, has to be combined with how our customers are going and purchasing these ad slots. And I think our team has done a phenomenal job so far in addressing those things. And I think that's driving our outlook for 2026. Robert Weisbord: I would also say that our ecosystem of assets to offer the advertising community has grown substantially from '22 to '26. And in a cross-platform buying ecosystem in 2026, it's much more advanced than 2022. And we spent the last several years building out complete different asset portfolio. So we have a holistic cross-platform offerings that are going after our advertisers as well. So it's not one dimensional. Operator: Our next question is coming from Ben Soff with Deutsche Bank. Benjamin Soff: I appreciate the color on renewals and potentially the ability to improve reverse comp in your negotiations next year. Any sense for how to think about the outlook for net retrans into 2026 and beyond? And then I have a follow-up. Christopher Ripley: So as we mentioned, next in 2026, we're expecting sort of flattish gross retrans because we don't have any meaningful renewals. We are in the process of reviewing how we give guidance, and we're going to have more to update you on when we announce Q4 in February on that, Ben. But that's, I think, all we can say for now. Benjamin Soff: Okay. And then just to clarify, in the $30 million run rate EBITDA from the partner transactions, how much of that contributed in 3Q? How much is in the 4Q guide, if any? Narinder Sahai: Yes, on that. So I think you're referring to the partner station buy-ins. So on that, what you had in Q3 was fairly immaterial. It was very, very immaterial, had no impact on Q3. For Q4, there is going to be some contribution there. But again, it's not material either and not -- and that's not driving our Q4 guide. There is going to be some contribution, but it's going to be de minimis. Operator: Ladies and gentlemen, as we have no further questions in the queue at this time, I would like to turn the call back over to Mr. Ripley for any closing comments. Christopher Ripley: Thank you, operator, and thank you all for joining Sinclair's Third Quarter 2025 Earnings Call. To the extent you have any questions or comments, please feel free to reach out to us. Operator: Thank you. Ladies and gentlemen, this does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning, and welcome to the RYAM Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice President of Investor Relations. Thank you, Mr. Walsh. You may begin. Mickey Walsh: Good morning, and welcome to RYAM's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are De Lyle Bloomquist, our President and CEO; and Marcus Moeltner, our CFO and Senior Vice President of Finance. Last evening, we released our earnings report and accompanying presentation materials, which are available on our website at ryam.com. These materials provide key insights into our financial performance and strategic direction. During today's discussion, we may make forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These risks are outlined in our earnings release, SEC filings and on Slide 2 of the presentation. We will also reference certain non-GAAP financial measures to offer additional perspective on our operational performance. Reconciliations to the most comparable GAAP measures can be found in our presentation on Slides 27 to 30. We appreciate your participation in today's call and ongoing interest in RYAM. I will now turn the call over to De Lyle. De Lyle Bloomquist: Well, good morning, everyone, and thank you for joining us. Before Marcus walks through the financial results for Q3, I want to cover 5 topics today. First, our updated 2025 bridge and guidance. Second, recent developments in tariffs and trade. Third, our progress resolving the operational challenges we experienced earlier this year. Fourth, the work underway at Temiscaming to restore profitability and position the site for divestiture. And finally, how we're executing to the plan that increases our EBITDA to over $300 million as we exit 2027. 2025 has been a challenging year for RYAM. In response to the extraordinary headwinds, we have focused squarely on strengthening the company's cash generation, enforcing capital investment discipline and protecting our core Cellulose Specialties franchise. I believe that this approach is working and that our third quarter results reflect the normalization of our core business and the continued progress across the strategic plan. Now let's move to Slide 4. Full year adjusted EBITDA guidance is now $135 million to $140 million, refined from our prior $150 million to $160 million range. The change is primarily driven by proactive downtime of our noncore paperboard and high-yield pulp production during the holiday season to monetize inventory and protect cash given the weaker paperboard markets. We also are experiencing increased market weakness in the business, but this negative was largely offset by FX tailwinds in the quarter. We also faced increased headwinds to our fluff business, primarily due to the U.S. fluff industry exports to China being displaced by the China 10% tariffs and creating increased competition into non-China markets. The Cellulose Specialties business performed near expectations and returned to normalized EBITDA margins in Q3. Turning to Slide 5. Please note that importantly, there are still 0 tariffs on our Cellulose Specialties and dissolving wood pulp products into China, 0 tariffs on U.S. sales to the EU and 0 tariffs on Canadian imports into the United States. Though direct tariff impacts have stabilized, we continue to work through the 10% tariff on our fluff products into China. We're collaborating with customers and adjusting geographic mix as part of our mitigation strategy. We're also developing a dissolving wood pulp fluff product that would avoid this China tariff. Our technical team is working to refine this new product to reduce unit production costs. Major development in Q3 was the U.S. ITC's preliminary affirmative injury determination and the ongoing antidumping and countervailing duty investigations covering Brazilian and Norwegian dissolving pulp imports. This determination allows the Department of Commerce to move forward with its investigations with preliminary duty determinations expected in early 2026. As a reminder, an estimated 190,000 tons of specialty grade acetate pulp are imported into the U.S. from Brazil each year and about 5,000 tons of ethers pulp are imported from Europe. So this case matters. It's a significant step toward a fair level playing field for U.S. producers of high-purity specialty cellulose pulp. Overall, we now believe that trade conditions are generally trending in our favor as we move towards 2026. On Slide 6, the isolated operational challenges we've discussed previously are stabilizing. In Q3, operational challenges at Tartas continued, including French national strikes that adversely affected Tartas. These were not RYAM-specific strikes, and the RYAM team did an outstanding job keeping customers supplied. As mentioned last quarter, we were understaffed in key technical roles at Tartas. Since June, we filled most of the open key positions via new hires, including the transfer of a couple of technical managers from Temiscaming and expect all key positions to be filled by year-end. Jesup and Fernandina are performing to expectations. Slide 7 outlines the actions underway at Temiscaming. 2025 has been a difficult year for the Paperboard and high-yield pulp business. We now expect an EBITDA loss of about $14 million compared with historical profitability of roughly $30 million. The decrease in 2025 guidance is due primarily to lower paperboard prices and volumes due to new U.S. capacity and our plan to idle the Paperboard line and 1 of the 2 high-yield pulp lines for 3 weeks in the fourth quarter to improve working capital and cash flow. Our plan to return the Temiscaming site to historical profitability is focused on 4 key initiatives. First, reducing Temiscaming costs by approximately $10 million. This initiative has been fully implemented through utility contract improvements and benefits derived from high-return strategic capital investments. Second, improving the Paperboard's line OEE by approximately $10 million in 2026 as a result of fewer economic shutdowns, grade optimization and enhanced maintenance reliability. Further upside of $5 million is expected to be realized in 2027 as supply and demand normalizes, resulting in no economic production shutdowns. Third, advancing the commercialization of new product development to generate an estimated $10 million in 2026 EBITDA and another $5 million in 2027. The new freezer board grade has been qualified and launched in Q3 and orders are being secured. The rolled softwood high-yield pulp qualification trials are advancing well with potential customers and the oil and grease resistant board trials will begin this quarter. Additionally, we are developing another new product, a high-yield pulp wrapper product that is in testing, which we will believe will deliver 2026 cost savings and potential for new market entry. And fourth, we're in active negotiations with U.S. customers affected by the 15% tariff on EU board imports and participating in an AFRY-led study evaluating strategic options for all the assets on the site, including the currently suspended HPC line. We recently responded to an opportunistic inquiry about Temiscaming, so there is current interest in the business. As we restore positive profits and cash flow to Temiscaming in 2026 and once the USMCA free trade review is completed in July of 2026, we believe we can divest the site at a fair value. Turning to Slide 8. Starting from our normalized EBITDA baseline, we've updated our plan to double our EBITDA from our current guidance over the next 2 years. I will walk through each step and provide an update on how we're progressing. On the pricing front, we believe that we're tracking ahead of plan. We are targeting a significant price reset to reflect the inherent value of our Cellulose Specialty products, which we believe requires recapturing lost value from prior year's inflation. On cost, the $30 million reduction program for 2026 is almost fully implemented. And as upside, we are now working on a $20 million of EBITDA benefit for 2027 that would be derived from strategic capital projects. From a specialty commodity sales mix standpoint, we are increasingly confident that we will realize the $30 million in EBITDA growth from margin improvement. I'll expand on why in a moment. Finally, our biomaterials projects are progressing, and I'll cover this progress in more detail in a couple of slides. In short, our strategy remains firmly intact, and we have a clear line of sight to achieving our 2027 run rate target. Slide 9 expands on the pricing and market fundamentals for our core business. We are highly confident that RYAM is in a strong position to realize a significant price reset for its Cellulose Specialty products. We believe that the market is conducive to capturing product value because industry capacity utilization is over 90% with no expected major capacity additions before 2029. RYAM holds most of the excess Cellulose Specialty capacity, and the industry is highly concentrated with RYAM and 2 other producers accounting for roughly 80% of the global Cellulose Specialty capacity. This is important because we're making a strong push on 2026 cellulose specialties pricing, i.e., pursuing a meaningful reset beyond prior year increases to reflect the value of our high-purity products, which requires us to recapture lost value from inflation that has increased nearly 35% faster than our average cellulose specialty pricing since 2014. We also continue to capture the opportunities to enrich our sales mix towards specialty cellulose. We are on track to requalify Temiscaming CS volumes to generate $5 million of EBITDA in 2026, with 2 customers already qualified and a third expected by year-end. We also remain highly confident we will generate $20 million in EBITDA over the next 2 years via specialty margin enhancement versus commodity sales. This objective will be driven by organic growth across Cellulose Specialty markets, supported by RYAM's outsized share of available excess capacity and potential upside to the plan from increased cellulose specialty volumes following Georgia-Pacific's Memphis facility closure, which produced an estimated 10,000 to 20,000 metric tons of cotton linter pulp grades that go into cellulose specialty applications. Finally, we continue to expect to realize $15 million of additional EBITDA when ether demand in the EU returns to historical levels, which would also be upside to our plan. On cost, $24 million in strategic investments made this year will generate $20 million in cost reductions at our HPC plants in 2026. We also are taking action to reduce corporate costs by $10.5 million, including eliminating lightly used medical benefits, increasing management span of control, reducing clerical roles via automation and terminating nonemployee technician and professional contracts. We are also working on upside to this cost improvements initiative. We are actively working on projects at the HPC plants to generate another $20 million in EBITDA for 2027 and believe that we can take out another $4 million to $6 million in corporate costs via AI and automation over the next 2 to 3 years. On Slide 10, I highlight the progress we are making on our biomaterial projects. The Altamaha Green Energy or AGE project is a $500 million 70-megawatt renewable power project to be based at our Jesup facility. RYAM will own 49% of this project. Recent progress includes reaching agreement on the EPC contract in September and receiving our air permit in October. Joint venture is now focused on reviewing project financing options, after which the project will move to its FID. RYAM will invest $46 million of equity to realize an annual proportional EBITDA of $50-plus million. Assuming a utility valuation multiple, this project is expected to generate a 12x ROI on RYAM's equity. The $64 million BioNova Fernandina Beach second-generation bioethanol project is expected to generate $15 million (sic) [ $19 million ] of annual proportional EBITDA for RYAM in return for $6 million of RYAM cash equity, generating a 19x ROI on RYAM equity, assuming a comparable multiple. Funding is secured, the air permit has been approved and engagement with the city of Fernandina Beach has begun with respect to a potential settlement on the land use application. The U.S. BioNova CTO project will produce about 13,000 tons per year of CTO from feedstock primarily sourced from our Jesup and Fernandina plants. Engineering for the project is complete that incorporates a high-quality used CTO plant that we acquired for $350,000 in September. Commercial discussions are advancing, and we expect to file the air permit application by the end of November. This project is expected to generate $6 million (sic) [ $7 million ] of annual proportional EBITDA per year on a total CapEx of $9 million, of which RYAM will contribute less than $2 million of equity. Using a comparable market valuation multiple, this project is expected to generate a 16x ROI on RYAM's equity. The European BioNova CTO tolling project is small, but requires no RYAM equity. We'll supply feedstock from our Tartas plant to a third-party toller, which will generate approximately $1 million of annual proportional EBITDA. And finally, the pre-biotics project at Jesup is one of the more exciting projects in the BioNova portfolio. As a result of exceptional efficacy results that show that our product delivers significantly higher weight gain and feed conversion performance in poultry than competing alternative feed additives, we are redesigning the plant to a smaller modular footprint that can scale up with demand growth due to lower initial dosing requirements. We've also signed a commercial sales MOU with a feed additives manufacturer for U.S. poultry and swine feed applications. While the redesign may extend this project's time line, this is a positive adjustment. The trial data confirmed our product's superior performance, and as a result, we believe meaningfully expands the commercial opportunities ahead. Across all these initiatives, RYAM demonstrated its ability to recycle capital into high-return projects due to low capital intensity, attractive project capital and repeatable outsized investment returns. Slide 11 explains why we can do this. The crux of these opportunities is RYAM's extensive and unique asset base. The noted biomaterial projects will be located at existing RYAM Cellulose fiber plants where the infrastructure, utilities, raw material sources and site management are already in place. Thus, RYAM's asset base anchors our ability to scale new biomaterial projects efficiently. We also believe that replicating this asset base would be prohibitively expensive. Thus, it is unique to RYAM. As a case in point, the replacement value of Jesup alone is estimated to be over $4 billion. So we believe that RYAM is uniquely positioned to pursue such opportunities at very attractive ROIs on equity invested. The technical and market viability of most of our projects are already proven. Pre-biotics isn't the only opportunity that would be new. We are, therefore, taking the necessary steps, including animal feed trials and resizing the plant to mitigate the market and capital risk for this project. The project that I summarized on the previous slide will generate high returns and very profitable growth through 2028, 2029. For the 2030s decade, we are investigating promising opportunities today in biomaterials and bioenergy to provide profitable growth. For example, we are currently conducting due diligence with GranBio for a pilot-scale ethanol-to-jet plant at our Jesup facility. If this due diligence concludes that such a project would be successful, we will then proceed to construction, which would be fully funded by a DOE grant. We've also signed an MOU with Verso Energy to evaluate eSAF production at Jesup and Tartas that will align with the EU decarbonization mandate starting in 2030. Just yesterday, we were informed that Verso Energy's project at our Tartas plant was selected by the EU Commission for its innovation fund and will receive a $37 million grant towards the construction and commissioning of the Tartas eSAF project after a final investment decision is made. Turning to Slide 12. I'd like to close with 3 points. First, our near-term issues are mostly behind us. The tariff situation has stabilized and the extraordinary operational challenges, except maybe those challenges tied to political turmoil, are resolved. Second, the underlying fundamentals of our strategy remain intact, and our EBITDA-enhancing initiatives are advancing. The core business is performing to expectations with a significant 2026 pricing reset being pursued. The $30 million in structural cost targets will be delivered for 2026, and we're now working on a further $20 million to $25 million plant and corporate cost reductions for 2027. Our confidence continues to build that organic growth across cellulose specialty markets will further expand EBITDA margins by $30 million over the next 2 years. The Temiscaming turnaround efforts are effectively underway and our biomaterials portfolio continues to progress. Third, RYAM valuation remains compelling. We believe that an up to 5x upside to the stock price for our shareholders would be implied by the comparable double-digit valuation of our competition in a recent transaction on our targeted 2027 $300-plus million run rate EBITDA. 2025 has been a challenging year, but we are getting through it with our strategy intact. Our core is solid and performing and our growth initiatives are advancing. We remain confident in the path ahead and are focused on execution on this plan for our shareholders. With that, I'll hand the call over to Marcus to take us through the Q3 financial highlights. Marcus Moeltner: Thank you, De Lyle. Let's now turn to Slide 13, which summarizes our third quarter 2025 financial highlights. In the third quarter, revenue was $353 million, down $48 million year-over-year. Operating income was $9 million, an improvement of $26 million compared to the prior year. Adjusted EBITDA was $42 million, a $9 million decrease from Q3 2024. And adjusted free cash flow year-to-date was negative $83 million, driven by working capital timing that is expected to improve in the fourth quarter. The primary drivers of the EBITDA change this quarter can be summarized with the following highlights. In Paperboard, earnings decreased by approximately $10 million, reflecting lower sales volumes and pricing from tariff uncertainty, competitive EU imports and new U.S. capacity, along with higher fixed costs for market-related downtime and the allocation of Temiscaming net custodial site expenses. In high-yield pulp, earnings declined by approximately $10 million due to continued oversupply in China and higher fixed costs resulting from market downtime. And in Cellulose Commodities, earnings increased by $7 million, driven by stronger fluff pricing, improved mix and the absence of prior year impairment and suspension charges. Given these weaker-than-expected results in our noncore business, we have now refined our full year 2025 adjusted EBITDA guidance to a range of $135 million to $140 million, implying $25 million to $30 million of adjusted free cash flow for the fourth quarter. Let's now review our segment results, beginning with Cellulose Specialties on Slide 14. Quarterly net sales for CS were $204 million, down $28 million or 12% from the prior year. The decline was driven by a 17% decrease in sales volumes, partially offset by a 7% increase in average sales prices from negotiated price actions and improved mix. Operating income was $49 million compared to $46 million in the third quarter of 2024. The improvement was driven by higher average selling prices, lower fixed costs related to the Temiscaming Cellulose indefinite suspension and a $7 million energy cost benefit from the sale of excess emissions allowances, partially offset by lower volumes, higher operating costs and the impacts of national labor strikes in France. Adjusted EBITDA was $66 million compared to $65 million last year, with margins increasing to 32% from 28%. Turning to Slide 15. Quarterly net sales for Biomaterials were $8 million, flat compared to the prior year. Higher turpentine volumes were offset by lower bioethanol sales volumes caused by temporary feedstock constraints and labor disruptions at Tartas. Operating income was $1 million compared to $3 million in the third quarter of 2024, reflecting higher shared and ancillary service costs. Adjusted EBITDA was $1 million compared to $4 million in the prior year, with margins of 13% versus 50% in Q3 of 2024. Turning to Slide 16. Quarterly net sales for Cellulose Commodities were $85 million, down $1 million or 1% from the prior year quarter. A 2% decrease in volumes, mainly due to the prioritization of production towards cellulose specialties and the absence of Temiscaming sales volumes following the indefinite suspension was largely offset by additional viscose sales as part of inventory and cash management efforts and an 8% increase in average selling price driven by higher fluff pricing and mix improvement. Operating loss was $13 million compared with $55 million last year. The improvement reflects the absence of a $25 million noncash impairment charge and $7 million of indefinite suspension costs recorded in the prior year, combined with higher selling prices, lower fixed costs following the indefinite suspension of Temiscaming Cellulose operations and improved cost performance. Adjusted EBITDA was negative $3 million compared to negative $10 million in the prior year quarter. Let's now move to Slide 17, which covers our Paperboard segment. Quarterly net sales were $39 million, down $16 million or 29% compared to the prior year. Average sales prices decreased 10% and sales volumes were down 21%, driven by mix, shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to EU imports and the start-up of new U.S. capacity. Operating loss was $4 million compared to operating income of $7 million in the prior year quarter. The change was driven by lower sales, higher fixed costs for market downtime and the allocation of Temiscaming net custodial site costs, partially offset by lower purchase pulp costs. Adjusted EBITDA was $1 million compared to $11 million in Q3 of 2024, with margins of 3% compared to 20% in the prior year. Turning to Slide 18. Quarterly net sales for high-yield pulp were $24 million, down $4 million or 14% compared to the prior year quarter. Average sales prices declined 10% and volumes decreased 8%, reflecting weaker demand, oversupply in China and shipment delays to customers in India. Operating loss was $10 million compared to breakeven results in the prior year. The decline reflects lower sales, higher fixed costs from market downtime and the allocation of net custodial site costs. Adjusted EBITDA was negative $9 million compared to positive $1 million in Q3 of 2024, with margins of negative 38% compared to 4% last year. Slide 19 provides an overview of our balance sheet and liquidity. We ended the quarter with $140 million of total liquidity, including $77 million of cash and a net secured leverage ratio of 4.1x within the 5x covenant threshold. During the quarter, we experienced working capital outflows across receivables, payables, customer rebates and inventory, which pressured free cash flow. These outflows also reflect temporary inventory management actions by a large Cellulose Specialties customer that affected order timing. We expect working capital levels to normalize as we progress through the fourth quarter and as sales volumes increase. We remain focused on driving working capital efficiency and improving cash flow generation. For the full year, we expect adjusted EBITDA in the range of $135 million to $140 million and positive free cash flow in the fourth quarter as these timing effects ease. In addition, we have $40 million of committed green debt available to support the execution of our Biomaterials portfolio as the projects move forward. The company will also look to proactively pursue a refi in 2026 to lower interest expense by leveraging RYAM's expected stronger operating performance and potentially lower debt as a result of the targeted divestment of Temiscaming. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Daniel Harriman with Sidoti. Daniel Harriman: Just wanted to hit on two in the beginning, one for De Lyle and one for Marcus. De Lyle, just going back to the Paperboard and High-Yield Pulp assets. Can you just talk again, I know you went through it all, but what specific operational and financial milestones do you think you need to achieve in 2026 to make those assets viable for a sale? And then Marcus, you touched on this at the end of your comments, but with leverage at 4.1x, can you just talk a little bit about how you're thinking about refinancing and repricing opportunities considering that the debt is callable in '26? And then what level of EBITDA would give you comfort that you can regain full balance sheet flexibility? Really appreciate it, guys. De Lyle Bloomquist: Daniel, this is De Lyle. I'll see if I can address your question on the Paperboard and High-Yield Pulp business. The way I would look at it is that before I can sell it, there's 2 gating items that we have to get passed. One is the USMCA renewal that is under negotiations right now between the 3 governments. And let's say that, that gets done by the deadline, which should be around July of 2026. I don't think there'll be any interest on anybody's part until we get -- in terms of buying those assets until we get to that point. The other gating item is that the -- I believe that the business needs to get back to positive EBITDA and positive cash flow. And I outlined 4 different things that we're pursuing to make that happen. I would say 2 of them are high probability or locked. One is the cost reduction, which is largely locked and given the activity we've already done. The other is the OEE of the paperboard plant, which has been demonstrating significant improvement over the past couple of months, and we expect to continue to do so as we go into 2026. The last element I would say is really big is really the new product development and the uptake of those new products into the market. So to get to a positive EBITDA, I need all 3 of those elements. And so really, the last critical element that needs to fall in place is the successful commercialization of those new products, which we should start seeing in the first quarter and second quarter of '26. So once I get to a positive EBITDA, positive cash flow and we get past the negotiations on the USMCA, I think at that point, we've got an asset now that's attractive, and we'll be able to dispose of it. Marcus Moeltner: Dan, thanks for your question. Yes, as you mentioned, the term debt becomes callable in May of next year, and there's a 2% takeout premium, right, which falls to 1% in November. I think the key here is, as we've gone through the materials, navigating these transitional headwinds and then demonstrating that this business should return to historical levels of EBITDA, right? We exited last year at $50 million quarters. And when we demonstrate that kind of cadence, we'll anniversary some weaker quarters that we had this year and get our LTM back up over the $200 million level. That certainly is going to give us a better leverage profile to be out in the marketplace and then continue to tell our story on the backdrop of all the positive items De Lyle mentioned in his review and look to do the breakeven on a refi. And we certainly see a line of sight where we can take a measurable amount of interest out of this business at that time. De Lyle Bloomquist: Does that answer your question, Daniel? Daniel Harriman: Yes, it does. Operator: Our next question comes from the line of Nick Toor with BlackRoot Capital. Nauman (Nick) Toor: I just want to hone into a bullet point that you have on Slide 9, which says that as we kick off 2026 Cellulose Specialties pricing discussions, we are targeting a significant reset beyond prior year increases, reflecting the value of our products and recapturing lost value from prior year's inflation. Could you give me a little bit of color on how much value has been lost from prior year's inflation as you head into these negotiations next month or this month? And what does -- what is baked currently into your guidance? And what is the impact of 1% increase in pricing over your cost inflation? De Lyle Bloomquist: Okay. I know it's early over there in the West. I certainly appreciate you getting up early to participate on the call. That's a question you ask, I'll see if I can try to answer it each of the different components. Starting off with just kind of the rule of thumb on a 1% increase in pricing. It generally generates $8 million to $9 million increase in EBITDA when we talk about increasing our CS pricing by 1%, okay? So you take that. And as I stated in the presentation, since 2014, the inflation has increased 35% more than the average pricing for our CS products. So if you take 8% or 9% for every 1% increase in pricing, the value lost is somewhere in the tune of $300 million. I think that's the right math. But anyway, you can certainly do the math quickly. In the plan that we've laid out with respect to getting to $300 million from our pro forma '25 number, we assumed essentially a 1% higher rate of increase on pricing than inflation. So I think we show on the slide an $89 million increase over 2 years in pricing, offsetting the $80 million in inflation. Largely, the reason for that assumption is because that's what our analysts out there are saying that we can get a 4% to 6% increase in our pricing given the tight market conditions, given the highly concentrated industry we're in and so forth. So we just assume the midpoint on that to drive that number. What I'll tell you is that we internally believe we need to increase that at a much faster rate than just 1% above inflation to get back to a level that will allow us to reinvest back into our plants and make our facilities viable for the long term because, quite frankly, since 2014, pricing where it has been has not been sustainable. And you've seen that in the industry, in that we've seen a competition and capacity gets shut down and rationalized with GP Foley being the last one -- not the last one, actually, Temiscaming operations being the last line being shut down, but GP Foley, Cosmo out of Washington State, and just recently, the CLP plant in Memphis, Tennessee, which is not in cellulose specialties, but certainly in the same applications, all right? So pricing must go up. It must go up. So I know the next question would be, well, how much more do you think is going to go up than just the 1% above inflation? It's going to be multiples of that number. It has to be multiples of that number, so that we can get the capital we need to reinvest back in the plants and make these facilities the gold standard that they need to be. So I can't tell you exactly the number that we're after, but all I can tell you is that we're not looking at a 5% increase. We're not looking at a 10% increase. We're looking at higher numbers. Nauman (Nick) Toor: So there is roughly $300 million of cash flow that needs to be recaptured, whether that happens -- a big portion of it probably happens next year and then the remaining in the years after that. But that's an extremely significant number considering your market cap is around $400 million. So that's very exciting. So now that the capacity has been taken out of the industry to the extent that it has and capacity utilization levels are as high as they are, now there is space for -- in the industry for there to be more rational pricing and recapture what has been lost through inflation over the last 9 or 10 years. Is that a fair assumption? De Lyle Bloomquist: That's -- I couldn't have summarized it better, Nick. That's exactly right. Nauman (Nick) Toor: Okay. Great. And then just second question, I think I see the stock is trading a few percentage points [ better ], which is sometimes the market gives you a gift. But it seems like your reduction in EBITDA from last quarter to this quarter was because of your decision to shut down your operations for a little bit to generate cash from your working capital. Can you just give me -- I think you mentioned in one of your slides that you -- the $10 million loss was from that decision, but that generated or is expected to generate additional working capital and improve the cash flows overall for the company. What's the magnitude of that working capital release? De Lyle Bloomquist: Roughly about $14 million. Nauman (Nick) Toor: Okay. So you basically sort of made the decision you're going to get the EBITDA down by time, but get $14 million more of cash? De Lyle Bloomquist: Yes, yes. Now $10 million of EBITDA loss or nonrecurring impact as a result of the, we call it, market or economic shutdowns of the Temiscaming facility. That's over the whole year. So the $14 million benefit is really over the whole year. Marcus Moeltner: Yes. And Nick, to De Lyle's comment, the -- so that's the portion related to downtime. If you look at our guidance in Q4, we're expecting close to $30 million of working capital release, as you saw in the bridge. De Lyle Bloomquist: Yes. A good chunk of that is Paperboard, but a good chunk of it. There's also a big chunk of it coming out of CS. Nauman (Nick) Toor: Got it. Got it. Got it. And then just last question, just honing in on your AGE project, which seems incredible. It seems like you've basically passed most of the hurdles for your FID. So just working on the financing, you've got an investment-grade counterparty there. And I think the EBITDA now is $50 million applicable to you, which is worth $500 million of value. Again, your market cap is in the $400 million. It's -- is there anything that is preventing or is there any major things that you're concerned about that could potentially derail that project? Or is now just the timing of funding or getting the funding finalized? De Lyle Bloomquist: It's just getting the funding finalized, Nick. And just to correct you, it's not $500 million of, call it, market cap. I think it's $650 million of market cap because you need to -- this is essentially a utility, 3-year contract, fixed pricing, no volatility coming from a Georgia Power, which is a statewide utility. So you take a 13x multiple and times it by the $50-plus million, it's a $650 million potential impact to our ROI. So we understand and we recognize that it's a super project for this business. The hurdle on this really, it's not so much the project financing, it's really finding the $46 million of equity that we got to -- we, RYAM, have got to put in the business. And we're looking at options of how we're going to find that money to put it to fund this. That's really the issue. Nauman (Nick) Toor: Okay. Okay. Sounds good. Well, I mean, as you know, I own almost 2 million shares of the stock, and I feel like I'm underinvested. So there's very exciting times for the company and it looks like you guys are making very rapid progress on the biomaterials initiatives. But the really exciting news coming out of this quarter, which we didn't know last quarter was the magnitude of price increases that are possible going into next year. So good luck with those negotiations, and thanks for the time. Operator: Our next question comes from the line of Amit Prasad with RBC. Amit Prasad: It's Amit on for Matt. Just starting off with Temiscaming. You noted a $5 million benefit in 2026 from qualifying volumes in other lines. What would that be on a run rate basis? And when do you expect those incremental volumes to show up? And I guess, how much of that historical Temiscaming business do you expect to ultimately have retained through transferring production to other facilities by the end of 2026? De Lyle Bloomquist: So you're asking on the amount of volumes that we're able to convert from our old HPC line in Temiscaming over to our facilities in Jesup, Fernandina and Tartas. What we're talking about with respect to the $5 million that we're looking to see in terms of increased EBITDA for '26 is conversions that have occurred this year, all right? We've already seen a significant amount of conversion since we suspended the operations back in July of 2024. So what we're saying is that -- and as we said at the time of the suspension, there was a number of products that would take multiple years in terms of qualification. So we're just now getting through the conversion on -- with 3 customers this year. And when those conversions are completed this year, that should add another $5 million of EBITDA for our business going forward. That being said, there'll be more opportunities in 2026 and probably after that, that's probably about the extent we're going to be able to get to as some of the business like MCC and some other grades that we are producing in Temiscaming have gone to the competition. But we're getting to the end of the road with respect to what we're going to be able to realize from the full conversion of those Specialty Cellulose business that we had up at the Temiscaming facility. I hope that answers your question. Amit Prasad: Yes, that's perfect. And I guess one other quick one for me. We saw paperboard realizations move significantly lower quarter-on-quarter. How much of that was just pricing related being down on a like-for-like basis versus just mix and potentially some FX? De Lyle Bloomquist: That's a really, really technical question and probably beyond my ability to answer it specifically, but we certainly would be happy to try to answer that question to you one-on-one. Amit, after we've done a little bit of investigation, is it okay just to punt that for a couple of hours. Amit Prasad: Yes, absolutely. No problem at all. Operator: [Operator Instructions] Our next question comes from the line of Dmitry Silversteyn with Water Tower Research. Dmitry Silversteyn: I have a couple of them. First of all, you talked about working on a new fluff product that would avoid the tariffs, the 10% import tariffs from China or into China. Can you talk about sort of what would allow -- kind of what the changes are that would allow the new product to bypass these tariffs? And when do you think this product will be available for commercial sales? De Lyle Bloomquist: Dmitry, welcome, and thank you for being on the call. Great question with respect to our new product development around fluff. We've developed it. We have a product that we believe that would qualify as a dissolving wood pulp product from a tariff perspective into China that would go into the fluff business, all right, or into the fluff market. And that's really the key is that it has to be a dissolving wood pulp product to be able to get into China without any tariffs. And that's -- and we're really the only, I believe, the only fluff producer who can do that because we're a specialty cellulose producer that can make dissolving wood pulp, whereas all the other fluff producers in the world cannot. So it's a real comparative advantage to be able to do that. So we can do that today. The issue that we're dealing with is that the cost of that conversion from fluff to a dissolving wood pulp product as the cost per ton is higher than the cost we would bear by paying a 10% fluff duty right now. So we've -- we continue to work on seeing if there's a means to lower the unit cost of production to make that dissolving wood pulp fluff. And in the meantime, we'll continue to do what we're doing, which is extend and expand our geographical diversity away from China to keep our fluff volumes high and keep the operation at capacity. But the truth of the matter is we have a product. We just have to figure out a way to make it cheaper. Dmitry Silversteyn: Understood. That's a very good level of granularity there. I appreciate it, De Lyle. My next question is, you talked about the $30 million in cost reduction projects that you announced last quarter being pretty much fully implemented by now, and we're just sort of waiting for the ramp-up and get to that run rate. You also mentioned that there's an additional $20 million in EBITDA improvement projects for -- through 2027. Is it too early to ask you to provide sort of some major buckets of where that cost saving is going to come from? De Lyle Bloomquist: Well, it can be the same major buckets that we've had for 2025 and '24, which is around improving reliability, improving material usage on our variable inputs through automation, through, I would call it, preventative and even predictive maintenance practices and measuring devices so that we can capture or catch maintenance requirements before any kind of catastrophic failure. Those are the things we've been focusing on in the past. That's what we'll be focusing in the future. And as I said in the past, a couple of analyst calls, we have a good backlog of projects that we're going through to -- that we'll invest in. And as capital gets available, we'll execute, that will give us the returns that we've been seeing for the last couple of years on these type of investments. Those are generally the same -- the buckets, though, Dmitry, that we'll be investing similar to the investments we did last year or this year. Dmitry Silversteyn: Okay. So basically, kind of like a Japanese Kaizen approach where you just do better every time you go through this and get a little bit more out of it. De Lyle Bloomquist: That's exactly right. Exactly right. Yes. Dmitry Silversteyn: Okay. Okay. Great. And then my last question, you mentioned in your High-Yield Pulp business that there was a shipment delays of a business going to India, and that accounted for some of your volume losses in that business in the quarter. What was the nature of those delays? And have they been resolved? Is there going to be a catch-up in the fourth quarter? Or is this sort of missed until next year? De Lyle Bloomquist: It's just a timing issue. We'll capture it in the fourth quarter. And really, what it comes down to is the lane between Montreal, Canada and the ports in India, the capacity of those ocean lanes are pretty slim, pretty narrow. And as a consequence, if you miss a ship, then you got to wait a month, right, for the next ship to show up to take it to India. So that's really the issue that we're dealing with. Operator: Mr. Bloomquist, we have no further questions at this time. I'd like to turn the floor back over to you for closing comments. De Lyle Bloomquist: Okay. Well, thank you. In closing, just to reiterate, the temporary headwinds that defined 2025, we believe are now largely behind us and that our core business is now performing as expected. As we talked about in the Q&A, pricing negotiations are underway, and we will continue to value and put priority on value -- on the value we provide to our customers so that we can be able to get the money that needed to reinvest back into our assets. Our operations are stable, and our teams are executing with discipline. We have a clear strategy and a strong portfolio of high-return projects that position the company for margin expansion and stronger cash generation and we are very disciplined in our capital deployment. These actions should reinforce your confidence in our path to sustain the growth and the long-term value creation of the project or of the company. Our focus now is very simple: execute with precision and continue to demonstrate the strength and potential of the company. And thank you for joining us this morning. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Welcome to the Golar LNG Limited Third Quarter 2025 Results Presentation. After the slide presentation by CEO, Karl Fredrik Staubo ; and CFO, Eduardo Maranhao, there will be a question-and-answer session. [Operator Instructions] I will now pass you over to Karl Fredrik Staubo. Karl, please go ahead. Karl Staubo: Thank you, operator, and good morning from our head office in Bermuda. Welcome to Golar's Q3 2025 Earnings Results Presentation. My name is Karl Fredrik Staubo, the CEO of Golar, and I'm accompanied today by our CFO, Eduardo Maranhao. Before we get into the presentation, please note the forward-looking statements on Slide 2. Starting on Slide 3 and an overview of Golar. Following our announcement on October 23, our existing fleet of 3 FLNGs are now fully contracted on 20-year charter durations with a total EBITDA backlog of $17 billion before commodity upside and inflationary adjustments. Now that the existing fleet is fully contracted, the key focus of the company is now on developing our fourth FLNG unit. During the quarter, we've made significant technical and commercial progress in deciding on size and design of our next units. As you can see on the bottom half of the slide, we have 3 different growth designs, the Mark 1, 2 and 3, which differ in liquefaction size ranging from 2.5 million tons all the way up to 5.4 million tons. We're on track to decide on the next FLNG project in the coming months. Over the course of the last 5 months, we've also concluded just over $1 billion in new corporate debt facilities and retired our October Norwegian bond maturity of $190 million. Following these developments, we now have a cash position of $1 billion and a net debt position of around $1.4 billion. Over the last 12 months, we generated $221 million of adjusted EBITDA, mainly from the operations of the Hilli. Our EBITDA generation is set to quadruple from contracted EBITDA once our existing fleet is fully delivered during 2028. Turning to Slide 4 and the highlight of the quarter is, for sure, the final FID and successful fulfillment of all CPs for Mark II's 20-year charter in Argentina. We now have earnings visibility for all our assets through 2045 and beyond. The total earnings backlog stands at $17 billion before commodity upside and inflationary adjustments, and this creates a very solid base to add further attractive FLNG projects to the portfolio. Turning to Slide 5, we highlight some of the key characteristics of our FLNG charter agreements. Golar aims to structure our long-term contracts as solid infrastructure cash flow with meaningful contractual protections. Some of the key attributes to these protections include that all of our contracts are paid in U.S. dollars. All cash flows are paid offshore and net of any local taxes in the country where we operate. All of our contracts are on English law. And for all our long-term contracts, operating costs and maintenance CapEx is either passed through or reimbursable by our counterparts. In addition to these strong protections, we have further fiscal protections for our 2 contracts in Argentina, including 30-year noninterruptible export licenses, environmental assessment approvals and protection from any changes to fiscal or regulatory terms, including taxes, et cetera, through the large investment protection under the RIGI framework in Argentina. We furthermore have corporate guarantees from the parent companies of our counterparts for a significant portion of the contract backlog to safeguard the cash flows. Our mission is to identify attractive gas reserves globally and utilize our FLNG technology to monetize these assets together with strong upstream partners. We try to structure the contract in a manner where we reduce the country risk by creating the mentioned strong contractual and regulatory protections as well as creating a buffer between Golar's operations and the country where we operate. These buffers are essentially the charters of the unit, which in turn includes Perenco in Cameroon, BP offshore Mauritania and Senegal and the ESA Consortium in Argentina, where we have the pro rata corporate guarantees from the shareholders, which comprise Pan American Energy, YPF, Pampa and Harbour. Turning to Slide 7 and a business update for the quarter. Q3 was one of the strongest quarter in the history of Golar, now adding $8 billion of firm EBITDA backlog through the lifting of all CPs and FID for the 20-year charter of Mark II to Argentina. In addition, we entered the U.S. rated unsecured market with Golar's first ever U.S. documented $500 million bond with a 5-year duration carrying a 7.5% coupon. In the quarter, we also retired a Norwegian bond with a net outstanding amount of $190 million at maturity in October. We've also signed the Hilli redeployment scope in between her contracts in Cameroon and before starting the contract in Argentina, where the vessel will return to her original construction shipyard at Seatrium in Singapore. We've also approved the ordering of long lead items for the fourth FLNG, and we've approved a new $150 million buyback program in line with our track record of buying back over 9 million shares over the course of the last 5 years. Turning to Slide 8 and focus on Hilli. Hilli maintains her market-leading operational track record with another quarter of 100% economic uptime. We've now delivered 142 cargoes since start-up or producing more than 9.8 million tons of LNG. During the quarter, the unit generated $51 million of adjusted EBITDA to Golar. Turning to Slide 2 and focus on the Gimi. Gimi started her commercial operations date under the 20-year contract for BP offshore Mauritania and Senegal in June this year. We're very pleased to see that operations are stabilizing and continuously improving in throughput. We're now fine-tuning operations with daily production frequently exceeding base capacity. In addition, we're actively working with the GTA partners to identify and develop value-enhancing initiatives for the GTA projects. These initiatives include operational efficiencies and debottlenecking of production capacity to improve unit economics and overall throughput, which will then benefit the potential earnings of Gimi over and beyond the base EBITDA. We're also pleased to announce that we're in very advanced stages of entering into a new credit approved $1.2 billion bank refinancing facility of the Gimi. We expect this facility to close within this quarter, and Eduardo will explain this in further detail in the later section. Turning to Slide 3 and a focus on the Mark II. As already explained, the key highlight of the quarter was the FID reached in August and the CP satisfaction met in October. The project remains on schedule for delivery in Q4 '27, and we expect to commence operations in Argentina during '28. To date, we have spent $1 billion out of the total conversion budget of $2.2 billion and the $1 billion has been fully equity funded by Golar to date. You can see on the pictures some of the progress made on the shipyard in China. To the left, you can see the ship, which is divided in 2 parts and now sits on land. In the middle, we have had the key laying ceremony to construct the new mid-ship section, which will be 80 meters long and 63 meters wide and will house the liquefaction plant of the units. And you can see the model structural assembly ongoing to the far right. This is part of the equipment that will be injected into the mid-section. Turning to Slide 11. Year-to-date, we've secured $14 billion in adjusted EBITDA backlog across Hilli and the Mark II, where all of the FID and CPs for Hilli was met in May and for the Mark II between August and October. We see the combination of these 2 contracts as a very strong addition to Golar's portfolio, generating a base EBITDA of $685 million over 20 years before meaningful commodity upside and inflationary adjustments, both of which Eduardo will explain in further detail later on. Turning to our key focus going forward is adding Unit #4, where we explain further details on Slide #12. As we explained on our Q2 call, we made commitments to the 3 shipyards to come up with updated pricing, delivery and payment terms if we were to go ahead with 1 of the 3 designs. We have now obtained such pricing and delivery times from all the 3 shipyards. The Mark I design is the same design of both the Hilli and Gimi. It's a proven design. We know it well, and the current pricing works and aligns with some of the commercial discussions ongoing. The Mark II would be a repeat of the vessel currently under construction, and we are pleased to reconfirm time and price with the shipyard. We've also spent a considerable amount of time getting an updated price time and schedule for the Mark III, and we continue to see yard pressure for attractive slots and delivery times. And we do think that timing is of the essence if you want to lock in attractive delivery. The key pressure item for the delivery of all 3 assets are long lead items. These long lead items see significant pressure both on delivery and price, mainly driven by the AI data center boom in the U.S. We now see relatively new entrants into some of these suppliers where companies like Google, Alphabet, Meta and so on are ordering gas turbines in large quantities, putting price pressure and delivery pressure. Being an existing large and long-term client of these sub-suppliers helps us in securing attractive slots despite the increased competitive landscape. We have, therefore, gotten Board approval to enter into long lead items during this quarter, and we expect to do so in the coming weeks and months to safeguard the delivery times now confirmed by the shipyards through -- over the course of the last few months. So what do we mean when we say we're going to go ahead ordering Unit #4? Well, we think the case study of the Mark II over the course of the last 12 months is relevant and what's highlighted on Slide 13. The Mark II, we placed the order in September '24 on speculation. Even if we had very strong commercial lead, the order was initially on speculation. In May '25, we signed a 20-year charter with SESA. FID was met in August and all conditions met in October. What we clearly saw from ordering the unit on speculation alongside the redeployment of Hilli was that we were able to drive considerable commercial value in Golar's favor by having a firm delivery and several commercial opportunities available. We are planning to following the same recipe for Unit #4. There were several commercial interests, both on the Hilli redeployment and on Mark II that lost out to the Argentinians. We have obviously maintained those discussions, and we've also developed incremental units, incremental projects. Therefore, we plan on using the same methodology to drive commercial value in our favor with a similar time line expected for a new project. The CapEx to EBITDA for the Mark II was 5.5x for a 20-year contract before the commodity upside and the inflationary adjustments. We continue to see a strong development in the commercial pipeline for new projects, and we're therefore comfortable to go ahead with ordering the long leads imminently. Turning to Page 14. We've made further advances for the next unit. We've confirmed between 36 and 38 months of construction time, both for the Mark I and the Mark II and around 48 months for the Mark III. The primary reason for the longer lead time on the Mark III is that for that unit, we are not starting with a donor vessel, but purpose building from the get-go, and it's also larger in size and require longer time. As already explained, we received updated pricing delivery and payment terms, which are broadly satisfactory to the project economics that we're targeting. We have identified and inspected donor vessels. And given the state of the current LNG shipping market, we're very pleased with the levels in which we can source attractive conversion units. We're now working to narrow commercial opportunity set and upstream timing and decide on FLNG design. We will target long-term infrastructure contracts, and we have positioned the balance sheet to facilitate to add one more unit. We're now on track to decide on the fourth FLNG vessel in the coming months, but starting with long lead items imminent. Turning to Slide 15 and to elaborate a bit on the market opportunity and what we see ahead of us. It's tempting to look to the FPSO industry's development, which started in 1985 with its first unit and grew very quickly to around 20 units 10 years later. We see and today stands at more than 250 units globally with 10 projects to 15 projects added annually. We see a similar development taking place in the FLNG industry. We're very pleased to see the increasing adoption by the industry that FLNGs are the cheapest, quickest and most efficient way of monetizing stranded and associated and flare gas resources globally. Golar pioneered this business with the first delivery in 2018, and the fleet now stands at 14 units with several planned incremental projects in development. We're pleased with our position as the only proven provider of FLNG as-a-service, and we plan on maintaining an active growth strategy for as long as we can secure economics along the lines of our existing contracts for 20-year durations. We will, however, maintain our policy of having maximum unchartered FLNG at the time. As we've explained over several calls, we still -- the key premise of our business. The gas liquefaction has 3 cost drivers: the cost of lifting the gas, the cost of liquefying the gas and the shipping distance from where the gas is produced to where it's consumed. The largest current exporter in the world of LNG is the U.S. They also happen to be the largest source of growth of incremental supply over the coming 5 years to 10 years. And they also happen to be the most expensive producer, so the incremental producer. Hence, if we can source projects where we can produce the gas significantly cheaper than Henry Hub, we know we have an attractive cost competitive advantage in constructing the liquefaction units. And more often than not, our projects are closer to end users and therefore, have a shipping advantage. And if we have this or continue to develop projects with the 3 significant cost advantages over the largest and incremental producer in this market, we believe we have a very strong business and one that we will continue to grow. Turning to Eduardo for group results. Eduardo Maranhao: Thank you, Karl, and good morning, everyone. I'm pleased to give an overview of Golar's financial performance for the third quarter of 2025. So moving to Slide 18, let's review the key financial highlights of the quarter. Following Gimi's COD in June, this was the first quarter with full operations of both of our units. I'm pleased to share that Gimi has been performing extremely well and daily production is now frequently exceeding base capacity. We achieved total operating revenues of $123 million in the quarter and net FLNG tariffs of $132 million in this quarter. Hilli contributed $51 million to our EBITDA, while Gimi added $48 million this quarter. In connection with the start-up of operations of Gimi, we incurred certain one-off expenses, which are expected to be normalized in the next quarters. When accounting for the corporate and project development expenses this quarter, our total adjusted EBITDA reached $83 million. Total EBITDA for the last 12 months ended in Q3 was $221 million. This quarter, we reported a net income of $46 million. This figure is inclusive of $12 million of noncash items, such as adjustments in the value of embedded TTF and Brent derivatives within the Hilli contract as well as changes in our interest rate swaps. In October, we raised $500 million under our first U.S. rated senior unsecured bonds with a new 5-year note at a cost of 7.5% . Following that, we repaid $190 million of our unsecured Norwegian bonds issued back in 2021. Our liquidity now stands at approximately $1 billion of cash on hand. So following that, our net debt position right now stands at just under $1.4 billion. Lastly, we're pleased to declare a dividend of $0.25 per share this quarter with a record date of November 17 and payment scheduled for November 24. Now moving to Slide 19. We continue to focus on accretive growth while maintaining a sustainable policy of shareholder returns. As our units come online, we plan to return most of operating cash flow after debt service to shareholders, while we'll continue to recycle capital through asset level financings and existing debt optimization to fund accretive growth. These are not mutually exclusive. Over the last 5 years, we returned more than $800 million to shareholders, including dividends of over $260 million and buybacks of more than 9.3 million shares at an average price of $125 per share, bringing the total share count to 102 million shares outstanding at the end of Q3. In line with that, I'm pleased to announce that our Board has approved a new buyback program of up to $150 million. Now moving to Slide 20. Following the announcement of the Mark II FID and CP's fulfillment, we now have full visibility of our earnings for the next 20 years. This gives us a clear path to cash flow growth and increased shareholder returns. By 2028, when our 3 FLNG units are fully delivered in operation, we expect our EBITDA to grow by more than 4x compared to the last 12 months. This can grow even further, subject to further commodity upside from Hilli and the Mark II. This incremental free cash flow upside under the SESA charters in Argentina can be estimated at approximately $100 million per year for every dollar per million Btu increase in FOB prices above $8 per million Btu. In 2028, when the Mark II comes online, our free cash flow to equity generation could be around $500 million to $600 million or approximately $5 to $6 a share before further commodity upside. Now moving to Slide 21. So how do we plan to fund that growth? Going forward, we plan to use the liquidity released from debt financing proceeds to be allocated to fund accretive FLNG growth. We have now received final credit approvals for a new $1.2 billion bank facility for FLNG Gimi at improved terms, and we expect it to close within Q4. This facility carries improved terms and conditions compared to the current one and is expected to release net proceeds of over $400 million net to us. At 5.6x the Gimi's annual contracted EBITDA, this is a good example of what can be achieved on the back of our long-term charters. When looking at our existing debt at Hilli and targeting a level of 4x to 5x its annual contracted EBITDA, in that case, even at a lower level than the Gimi one, we could release up to $1 billion in proceeds from that by refinancing the existing debt with a new facility. Similarly, if we apply the same multiples to the Mark II, which is currently completely unencumbered, we could be looking to raise up to $2 billion from new financings. Combined, these 2 transactions could raise up to $3 billion in fresh proceeds, which can be used to fund further FLNG growth. Now moving to Slide 22. Following the confirmation of the contracts in Argentina with the FIDs of Hilli and the Mark II, we now have a total firm EBITDA backlog of more than $17 billion before commodity upside and further inflation adjustments. I wanted to recap how this is built up once all units are in operation. So starting with our share of the Gimi earnings. This is expected to add $150 million, followed by the $285 million from Hilli, as you can see on the slide, and $400 million from the Mark II. When you deduct our corporate expenses, we're left with a base EBITDA of $800 million fully secured for the next 20 years. As I explained before, changes in LNG prices could significantly give a very high upside to us. And in that case, we have a limited downside with a very significant and uncapped upside. For example, if we assume FOB LNG prices of $10 per million Btu, our EBITDA could be in excess of $1 billion per year. At $15, this number could grow to $1.5 billion. As a reference, if all the units were in operation in '22 and assuming LNG prices during that time, we could be earning close to $3.5 billion in that given year. This really shows the huge upside potential of our commodity upside. So lastly, on Slide 23, I wanted to summarize the different ways our investors can have exposure to Golar. Our shares are listed on NASDAQ, and I'm pleased to see increased volumes with daily liquidity exceeding $50 million per day. Following our latest issuance of our new U.S. rated $500 million unsecured bonds in October, we now have 2 unsecured bonds trading in the market with a total outstanding amount of $800 million. We have also issued $575 million of convertible bonds back in June. So I think that ends this slide here. I'll now hand the call back to you, Karl. Karl Staubo: Thanks, Eduardo. Turning to Slide 25 to summarize. We're very pleased with the development of the quarter and in particular, 2025 year-to-date. We remain the only proven service provider of FLNG as-a-service, combined between Hilli and Gimi having now delivered more than 150 LNG cargoes. Our earnings backlog now stands at $17 billion of EBITDA before commodity upside and inflationary adjustments. This will further increase as we add additional units. Our EBITDA is set to quadruple between now and 2028, and the pathway to multiple return in shareholder returns is beyond the quadruple as the EBITDA growth is far in excess of debt service growth. We remain a strong balance sheet position to provide for additional growth units. Our fully delivered net debt-to-EBITDA stands at around 3.4x with a current cash position of around $1 billion. We're on track to order our fourth FLNG unit, and we're in the process of ordering long lead items during this quarter. Our focus remains on shareholder returns, and we're pleased that the Board approved yesterday a new $150 million buyback program, which is in line with the $812 million returned to shareholders in the last 5 years. That concludes the prepared remarks of today's presentation. I'm happy to turn the call back to the operator for any questions. Operator: [Operator Instructions] Your first question comes from the line of Chris Robertson from Deutsche Bank Securities. Christopher Robertson: Just we saw some correlation in the share price recently with some -- with the Argentine market due to the recent election cycle. And one of the things that could help reduce the market's perception of risk around Argentina, perhaps if SESA is able to lock in long-term offtake agreements. So I was wondering if you could comment on SESA's current strategy, what they're currently doing if they're out competing in the market for long-term offtake sale purchase agreements and where things stand on that front? Karl Staubo: We've observed the same, which is interesting. I think we tried to explain the structure of our contracts on Slide 5 in this deck. These contracts are for 20-year durations, and we've structured them independent of political parties. We subjectively are pleased to see the outcome of the election. However, our contracts -- the FID for the Mark II was taken before the outcome of the election. And we do not think that it would have any material impact on our earnings irrespective of outcome. But subjectively, we're pleased to see the development. To answer your question on long-term offtake, that's a SESA decision. We are obviously shareholders of SESA. So the current plan is to initially lock in the offtake for the Hilli volumes for a decent period of time. And we're pleased to see the activity level and interest for that offtake. As earlier explained, the world is looking to diversify sources of LNG and the attractiveness of Argentina sitting on the world's second largest shale discovery is very interesting because it will be a long-term and very significant exporter of LNG for the coming decades. So we see very strong interest from all the big industrial and trading houses for that volume. We do expect them to sign the first offtake contracts within this quarter. Christopher Robertson: Great. Just turning to the donor vessels at the moment, they seem to be relatively cheap. That being said, there's a little bit of cost inflation as you probably saw here on long lead items and also from the shipyards just being relatively full. So with that in mind, can you comment if the future projects could target a similar potential CapEx to EBITDA ratio of 5.5x, as you noted in the slides here? Or is that calculation a bit different with recent costs? And if you could comment on where total CapEx stands today on some of the new potential projects? Karl Staubo: I think it's fair to say that the topside equipment, the topside equipment cost inflation and construction time offsets the saving of the donor vessel and more so. The cost inflation pressure is higher than what you save on the ship, even if they do partly net off each other, but stronger pressure on the upside to put it that way. However, we're pleased to see that, that's also the case for liquefaction fees. And we are planning or targeting to do new projects with similar economics on CapEx to EBITDA ratios versus the existing projects. Christopher Robertson: And just as a follow-up on that. If you were to move forward with the Mark II having that option at the shipyard, would that be locked in at the similar price of the Fuji? Or has there been some cost inflation that could impact that as well? Karl Staubo: It's -- you have a cheaper donor vessel than the Fuji. You have a higher long lead items. But the overall price, I would say, for this context is broadly in line with a slight increase. Broadly in line with the existing Fuji. Operator: Your next question comes from the line of Even Kolsgaard from Clarksons Securities. Even Kolsgaard: So I have a question related to Gimi and the capacity of that ship. I know you answered something similar before and touched upon it in your presentation, but one of your partners is very vocal about the potential raising the nameplate capacity of that ship. I think the specific number is about 10% to 20% above the current nameplate capacity. So do you have any comments or color on that statement? And if it's possible? Karl Staubo: Yes. So when you make reference to nameplate, there's a few different numbers. So let's talk about nameplate. The nameplate capacity of Gimi is 2.7 mtpa. The contracted volume is 2.4 mtpa. So when we say that the unit makes $215 million of annual EBITDA, that's with reference to the 2.4 mtpa, which is 90% of the 2.7 mtpa. Is it possible that you can produce more than 2.4 mtpa and up towards 2.7 mtpa? Yes, absolutely. Is it possible that we can produce more than 2.7 mtpa? We are evaluating that through the debottlenecking exercise that I mentioned during the call. That could include upgrading certain equipment. The magnitude in percentages over and beyond 2.7 mtpa, we are not in a position to have a clear stance on today. The way it works is that if you change one single component, that component itself could be like 15% or 20% production increase, but then you face a bottleneck elsewhere in the liquefaction plant. So it's a knock-on effect, and you need to go through the entire system to really gauge the total potential debottleneck potential. So for now, producing more than 2.4 mtpa, whether that's feasible? Yes, we think so. It's subject to operations upstream and ambient temperature. Are we -- is it possible to do over the design nameplate? Perhaps, but that's through the debottleneck exercise, and we're not going to commit to any percentages until that exercise is done. Even Kolsgaard: Okay. So my second one is on the market for FLNGs. As you've said, there has been a growing numbers of LNGs and interest in that market. But we also see new companies that are doing FLNGs like Delfin LNG and Amigo LNG. And these companies are private, so we don't really know much about the CapEx or contract structures that they get for the tollings, et cetera. But do you have any information when it comes to how does these units compare to yours in terms of competitiveness? And are you also seeing more competition when it comes to potential projects that you are looking at? Karl Staubo: So we're pleased to see that more people adopt FLNG technology. I don't think I want to go into any of the specific projects that you mentioned, but we're pleased to see increased adoption. I think it's still fair to say that there are more PowerPoint FLNG companies than real FLNG companies. But even including the projects that you mentioned, none of them are offering FLNG as a service. All of them are utilizing gas that they control or in areas where they control. They're not offering this to an upstream partner -- an external upstream partner. So do we see increased competition for shipyard slots and long leads? Yes. Some of that is not driven by FLNGs. It's by AI data centers, it's by container ships, it's by LNG ships, but it's also FLNGs for sure. Do we see competition for FLNG as a service right now? No. Operator: Your next question comes from the line of Spiro Dounis from Citi. Spiro Dounis: First question, I wanted to hit quickly on the buyback. The buyback was linked to those notes you did early this summer. Curious how you're thinking about deploying this program and what metrics you'll be looking at each quarter to decide how much you're going to repurchase? Eduardo Maranhao: Spiro, this is Eduardo here. So as we stated during the call, over the last 4.5 years, we bought back over 9.3 million shares. I think we have taken a pretty opportunistic approach to that. Following the convertible bonds, we bought back 2.5 million shares and the previously approved program had then been exhausted. So I think we have received approval yesterday from the Board for a new program of up to $150 million, which we will continue to actively and opportunistically execute in the market in the coming months. I think we will not change our approach to buybacks as we have been consistently doing over the last 4.5 years. Spiro Dounis: Got it. So that's great to hear. Second question, maybe just moving to the fourth FLNG unit. Curious if you could put a finer point on maybe some of the gating items here to moving forward. I realize you talked about some of them, but you also mentioned going back to potential customers you had spoken to before. Curious how big that list is and maybe why they're stronger candidates now versus not prior? Karl Staubo: So well, the list of existing clients is very obvious. It's Perenco, BP, Kosmos and the SESA partnership. I think we're obviously with Hilli departing in Cameroon. Cameroon has more gas reserves that are currently not being monetized. The day we leave, there will be no LNG exports from Cameroon. I think we have a proven operating model there. It's been a very successful partnership across all the parties, and we would be pleased to continue to work in Cameroon if we can find the right resource and agree the right terms. I think for the GTA project, many options are being evaluated to enhance the unit economics of that project, which could include increased liquefaction capacity. In Argentina, there's an expressed interest to continue to grow exports. I think as late as yesterday, there was an announcement between YPF, Eni and XRG. We -- so those are obviously the existing clients. There were other clients that were -- or other prospective clients that we're competing for the Mark II and Hilli. Some of them have now developed further since sort of losing has to the Argentinians last year and have gotten gas approvals, export rights and so forth that make the project more mature and more positioned to lock in an FLNG. So those are the ones we develop in addition to the continuous business development our BD team continues to develop. And some of them are in areas we're currently not operating in as well. And we do see strong demand pull, obviously, from West Africa and South America, but it would be interesting to see if it would be possible to open other areas as well that we're currently in discussions for. Operator: Your next question comes from the line of John Mackay from Goldman Sachs. John Mackay: Maybe I'll just pick up on that last one. It sounds like you are lining up for a fourth vessel order effectively before we know exactly where it's going, similar to what you did last time, makes sense. But I guess my question is going with the Mark I or Mark II or Mark III, each of those kind of has a different market where it could end up going. So I was just wondering if you could kind of talk about where you're seeing the commercial opportunities relative to each of those 3 options. Karl Staubo: John, so you're right. As we said in the prepared remarks, we are planning to narrow the design in the coming months. The long lead items, the critical long lead items are, in fact, the same or interchangeable between the designs. It's mainly the gas turbine and the cold box. The difference is the magnitude of how many turbines you order for the different designs. When we make the slot reservation and commitments to the long leads, it is interchangeable. And therefore, the reason for going ahead with that now is that, that's still flexible to design, subject to the deciding design in the next coming months. And that's where we're targeting. Where we see the smaller ones, so the Mark I, that's West Africa business, the way we see it. Mark II is more versatile in terms of geographical or geography. And Mark III effectively currently has 2 projects that we're working on. So that it's fewer projects for Mark II than necessarily for Mark III than the other 2. But yes, so we're now planning to narrow that range to decide on which vessel to go for. John Mackay: I appreciate that. A quick second one for me. Just can you remind us the status of the pipeline for Argentina, kind of what we should look for next? When we kind of need to see something moving forward? Any updates there? Karl Staubo: So there are 2 relevant pipelines. The least cumbersome one is the one that connects the existing grid to the Hilli. That's under construction and very much on track. The one you are referring to is the new pipeline from the Vaca Muerta to the Gulf of San Matias -- that pipeline is a SESA work stream is independent of our contracts because we are paid as long as we're on site and available, irrespective of whether we liquefy or not. However, it's obviously important for us that, that pipeline is built because that is what speaks to the upside and the overall economics. SESA is now in an active round where they are auctioning out the EPC contract and/or a tariff-based service agreement, subject to which model they go for. And our understanding is that they expect to enter into a contract and award it in the first half of next year. The construction time of the pipeline is less than 2 years. Hence, that should be well within the timeline for Mark I's arrival. They're also in parallel working on all the regulatory framework needed, including right-of-way RIGI protection and so forth. The good thing is that the absolute majority of the distance, the pipeline will go next to the oil pipeline that was approved last year. Hence, right-of-way is already -- that path has already been laid because you can just go exactly next to it. So we think this is a repeat, and we understand that SESA is happy with the engagement from the potential EPC providers of that pipeline. Operator: Your next question comes from the line of Alexander Bidwell from Webber Research & Advisory. Alexander Bidwell: Just wanted to pick up on just a couple of the previous questions on some of the commercial demand or rather demand for FLNG units. Are there any pockets of demand that surprise you? Any specific regions where you feel commercial discussions have picked up more so than others? Karl Staubo: I don't think surprise is the right word. These are very large infrastructure projects that require a lot of stakeholder and a lot of time. So to say that it's surprising, I don't think it's right to characteristic. But what we do see is that as we've said a few times on the call, there's an increasing industry adoption. People are not scared of deploying an FLNG anymore. And it's a bit like if your neighbor has one, you want one, too. And if you just look at where FLNGs are deployed or being planned to be deployed in terms of contracts already sanctioned and just look at the neighboring countries, they all have pretty much the similar reserves. Why would your neighbor do something and make billions of dollars of LNG cash flows a year when you're not. And that dynamic is now ongoing, stronger than previous because more people are adopting the projects. Alexander Bidwell: Interesting. That's a great analogy. And for my second question, could you talk to, I guess, the key steps to greenlighting and optimization or debottlenecking at on the Gimi? And then once you approve or decide the path forward, could you walk us through how the actual work might be executed? Could there be any potential impact to production, et cetera? Karl Staubo: The question is probably just as well placed to BP or Kosmos. But the way this works is it's an interaction, right? So the gas comes is lifted from the ground, then goes through a BP-operated FPSO. Then the gas is sent to the Gimi, then circulated on a hub that's BP operated and then offloaded. So when you talk about debottlenecking, it's not just Gimi. It's the whole process from the gas is lifted until it's loaded onto a ship. For example, one of the key performance measure of an FLNG is the quality of the gas entering the unit and ambient temperature. Now ambient temperature is a little bit tricky to play around with, but you can do smart things like air inlet cooling and so forth. So when you talk about debottlenecking, it's not just on the FLNG on itself, it's through the value chain and where does each dollar deployed make the maximum output and how do we work together to optimize that output. So for now, that's the discussion. Maybe you can tweak the gas treatment on the FPSO to send a more optimized gas stream to the FLNG and thereby increase throughput, as an example, right? So the work we are currently discussing does not require any movement of Gimi -- she stays where she is. It might entail maintenance shutdown of the trains, but you never shut down all 4. You just do like shut down a train for 1 week, maybe do certain upgrades or change some of the equipment to get that back up and running before you do the next one. And that would obviously be in accordance with the upstream to boost output. And the NPV of that would be massively positive if nobody is incentivized to do it because it's working today. So this is an opportunity set, which could benefit everybody. Operator: Your next question comes from the line of Liam Burke from B. Riley Securities. Liam Burke: You're talking about future projects, and you pretty much have an idea of what the cost of the FLNG is. When you're looking at the implicit returns on that project, are you looking at just tolling agreements? Or do you factor in some sort of commodity premium on the cash flow generation of future LNGs? Karl Staubo: The latter. So to explain, we do not want to be in any project if the cash breakeven of the project is not competitive. Then it's a partnership that sets up for failure over time. And by competitive, we mean competitive to U.S. exports. So the way we try to structure the project is to charge what we think is a fair but also attractive to Golar firm tolling part and then a commodity upside if the achieved FOB price significantly overshoots the cash breakeven of the project. In that way, we can make a project with an attractive cash breakeven to all the stakeholders and aligned structure on making money together if and when gas prices go up. The only thing we know is over the next 20 years, nobody knows where the gas price is going. It will be volatile. So it's important to have an attractive cash breakeven and capture the upsides when they're there. Liam Burke: Great. In terms of the Gimi operational efficiencies and debottlenecking, are you gleaning anything from that process that can help you on future FLNG projects? Karl Staubo: Yes. So if you look at our units, they're getting more efficient. The Gimi is more -- slightly more efficient than the Hilli Mark II is quite a bit more efficient than the Gimi, both in terms of fuel consumption, emissions, water intake, many different things. So we're constantly adopting technology advances. Like think of it as a car. If you bought the Volkswagen Golf 5 years ago and you ordered a new one now, it looks very similar, but it's got a nicer radio, better sound system and whatever else it has, better headlights. It's the same car, but it's nicer. Liam Burke: I'll be sure to consider that when looking at the golf. Operator: We will take our final question. The final question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: So the buyback program was reloaded in Q3. And in the past, you've shown some flexibility regarding how to reinvest in the company. So my question is, how are you thinking about shareholder returns through buybacks versus that outstanding 30% interest in the Gimi given where the stock is today? Karl Staubo: That's for us -- so the $150 million is set for share buybacks, right? When it comes to the Gimi, that's obviously -- the 30% stake is owned by Keppel Capital. If that can be acquired accretive to where we can do other FLNG growth and/or where we are trading on the market, we will, for sure, consider it. If not, we don't need to buy it. Sherif Elmaghrabi: Got it. And then turning to the fleet. If we fast forward a year and you secured a contract for a fourth FLNG, but the order book for gas turbines has obviously grown. Do you have a sense of how that affects delivery timelines for a fifth unit? Is it a few months more than I think you said up to 48 months for Mark III, for example? Karl Staubo: Okay. To just give you an example, up until June this year, the delivery time for a gas turbine was 24 months. In June, some of these are down to almost single suppliers. In June, one of these suppliers sent a letter to all its clients saying lead times just went from 34 months -- to 24 months to 36 months. So that's a 1-year delay. If you're an existing client and you have an existing program, maybe you can sneak in the middle there somewhere. But you're talking significant potential delays unless you lock in the long leads, which is why we're going ahead now because in developing these projects, you need to know when you start up to drive commercial value. And if you keep letting the critical items slide, even if the shipyard is ready on everything else, if you can't get the topside equipment there, you don't get the ship. Operator: This concludes today's question-and-answer session. I will now hand back for closing remarks. Karl Staubo: Thank you all for dialing in. As we said, we're now in Bermuda. Eduardo and I will head to New York later today and hope to see some of you there over the course of today and tomorrow. Other than that, thank you for listening in, and we're pleased to stay in touch. Thank you. Eduardo Maranhao: Have a good day. Karl Staubo: Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Frontier Group Holdings Quarter 3 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, David Erdman, Senior Director of Investor Relations. Please go ahead. David Erdman: Thank you, and good afternoon, everyone. Welcome to our third quarter 2025 earnings call. On the call with me in speaking order are Barry Biffle, Chief Executive Officer; Jimmy Dempsey, President; Bobby Schroeter, Chief Commercial Officer; and Mark Mitchell, Chief Financial Officer. Each will deliver brief prepared remarks, but before they do, I'll recite the customary safe harbor provisions. During this call, we will be making forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those predicted in these forward-looking statements. Additional information concerning risk factors, which could cause such differences are outlined in the announcement we released moments ago, along with reports we file with the Securities and Exchange Commission. We'll also be discussing non-GAAP financial measures, actual results of which are reconciled to the nearest comparable GAAP measure in the appendix of the earnings announcement. And as well, we'll be talking about stage adjusted unit metrics, which are based on 1,000 miles. So I'll give the floor to Barry to begin his prepared remarks. Barry? Barry Biffle: Thanks, David, and good afternoon, everyone. We delivered third quarter results per share at the midpoint of our guidance range, demonstrating disciplined execution as we navigated competitive fare pressures and excess peak capacity through the rigorous cost management. Operationally, our performance was noteworthy in September and October, ranking third and fourth, respectively, in completion factor among domestic carriers, underscoring our reliability and operational strength. Looking ahead, the competitive landscape is shifting in our favor. With our largest low-fare competitor significantly reducing capacity, we anticipate a more balanced supply-demand environment. This positions us to accelerate key commercial initiatives aimed at driving RASM growth and reinforcing our competitive advantage. Our strategy remains clear: to be the leading low-fare carrier in the top 20 U.S. metros. We are leveraging enhancements to our loyalty program and upgraded product offerings, including the rollout of first-class seating by spring, an important milestone in elevating customer experience and revenue opportunities. At the same time, we will continue to aggressively manage costs to preserve our industry-leading cost advantage, which is central to delivering sustainable margin improvement. I want to thank our 15,000 Team Frontier members, including pilots, flight attendants, mechanics, airport staff and more, whose dedication enables us to deliver the exceptional service and execute on our strategy every day. I'll now turn the call over to Jimmy for commercial review. Jimmy? James Dempsey: Thanks, Barry, and good afternoon, everyone. In the third quarter, total revenue was $886 million on 4% lower capacity year-over-year. Revenue per passenger rose to $106, up 1% from the prior year, supported by an 81% load factor, nearly 3 points higher than last year. RASM was $0.0914 and stage-adjusted RASM improved 2% year-over-year to $0.0876, reflecting disciplined capacity deployment. For the fourth quarter, we expect capacity to be roughly flat year-over-year with an average stage length of approximately 890 miles. Importantly, competitive seat capacity is projected to decline by 2 percentage points, including significant reductions by Spirit Airlines, which is exiting 36 overlapping routes and reducing frequencies by 30% across 41 others in December. This dynamic should drive sequential improvement in stage-adjusted RASM and supports our confidence as we plan for 2026. We expect to return to growth next year given the developing competitive landscape, and we'll provide formal 2026 capacity guidance on our next earnings update. To capitalize on emerging opportunities, we announced 42 new routes launching through early 2026, expanding our presence in major metro areas such as Atlanta, Baltimore, Charlotte, Chicago, Dallas-Fort Worth, Detroit, Fort Lauderdale and Houston, along with new international destinations, including Guatemala, Honduras, Mexico, Turks and Caicos and the Bahamas. These additions reinforce our commitment to scale and strengthen our network. Finally, I'm pleased to welcome Jeff Matthew as our new Chief Information Officer. Jeff brings deep experience leading large-scale IT organizations and will accelerate our digital transformation, enhancing customer engagement and driving efficiency. I'll now hand it over to Bobby to provide a brief loyalty update. Robert "Bobby" Schroeter: Thanks, Jimmy. The significant investments in our loyalty assets, including Frontier Miles, our co-brand credit card, Go Wild Pass and Discount Den generated approximately $7.50 in revenue per passenger in the third quarter, up more than 40% year-over-year, driven by enhancements that resonate with higher income, higher credit customers. Frontier Miles now offers the most attainable elite status in the industry with meaningful benefits like premium seat upgrades, free bags and unlimited companion travel. We've expanded redemption options through miles for bundles and improved boarding for our most loyal customers. In addition, cardholders received 2 free check bags, a benefit we introduced last year that has been very well received, and we recently introduced free companion passes with the credit card. These initiatives are fueling engagement and position us to double loyalty revenue per passenger over time, creating a durable high-margin revenue stream. I'll turn it over to Mark now for the financial update. Mark Mitchell: Thanks, Bobby, and good afternoon, everyone. Recapping our cost performance during the third quarter. Our nonfuel operating expenses were $729 million, down 6% sequentially, driven largely by fleet impacts associated with spare engine inductions and related sale-leaseback financing gains. The increase in nonfuel expenses over the prior year quarter was primarily related to a onetime $38 million nonrecurring credit tied to a legal settlement recognized in the 2024 quarter and fleet-related growth. On a unit basis, adjusted CASM ex fuel in the third quarter was $0.0753, 9% higher year-over-year due largely to a 15% reduction in aircraft utilization resulting from our disciplined capacity deployment primarily on off-peak days. Fuel expense was $234 million, down 10% year-over-year, driven mainly by a 5% decrease in the average fuel cost, 4% lower capacity and slightly higher fuel efficiency. We generated 105 ASMs per gallon in the quarter, 2% higher than the corresponding '24 quarter. Third quarter net loss was $77 million, including $1 million of tax expense, resulting in a net loss per share of $0.34 at the midpoint of our guidance. We ended the quarter with $691 million in total liquidity, in addition, post quarter end, we issued a $105 million par value note in a private placement that is secured by substantially all of the spare parts and tooling related to our fleet of A320 family aircraft. The note matures in 2032. Pro forma for this transaction, liquidity on September 30 was approximately 21% of trailing 12 months revenue. Briefly recapping fleet activity during the quarter, we took delivery of 2 A321neo aircraft, both financed with sale-leaseback transactions, bringing our total aircraft fleet to 166 at quarter end. We expect another 10 aircraft deliveries in the fourth quarter, our largest quarterly allocation of the year, comprised of 7 A320neos and 3 A321neos, of which all have committed sale-leaseback financing. Following the agreement with Pratt executed in July, we took delivery of 6 GTF spare engines in the third quarter, all of which were financed with sale-leaseback transactions. We expect to take delivery of another 10 GTF spare engines in the fourth quarter, which we also expect to finance with sale-leaseback transactions. Turning to guidance. As provided in this afternoon's announcement, we expect fourth quarter adjusted earnings between $0.04 and $0.20 per diluted share on capacity, which is expected to be roughly flat year-over-year. The average all-in fuel cost is expected to be $2.50 per gallon, which is $0.09 higher relative to the prior quarter forward curve indication. Our fourth quarter guidance reflects an expected improvement in competitive overlap capacity versus the prior year quarter, continued progress across key commercial initiatives, fleet-related financing activities and jet fuel prices, which are elevated relative to the prior quarter guidance expectation. Lastly, we do not expect a material tax provision in the fourth quarter due to a cumulative tax loss carryforward, which will largely offset any tax expense. Thanks again, everyone. And operator, we're ready to begin the Q&A segment. Operator: [Operator Instructions] Our first question comes from Ravi Shanker of Morgan Stanley. Ravi Shanker: Just a couple of questions on the competitive capacity here. Obviously, you guys are being pretty disciplined right now with flat growth next quarter. But what's the rest of the industry potentially fills in for the capacity that's coming out here and we end up in roughly the same situation that we had before? Barry Biffle: I don't think that's likely. Thanks for the question. Look, the capacity that's coming out right now is some of the lowest cost capacity and some of the lowest yielding customers. The only ones that could actually profit off that is actually us. So, I just don't see that being replaced by big airlines. It's not their business. Ravi Shanker: Understood. Maybe a quick follow-up. Kind of how long do you think the tailwind here lasts? And is this something that is really strong out of the gate kind of given the disruption? Or do you think it gets kind of better, if you will, from your perspective, the long way it goes on? Barry Biffle: Well, I wish I knew the answer to the pace of that. I mean it's dribbling pretty good tailwind right now. Could that tailwind go from 30 miles an hour to 100 miles an hour? Possibly it increases, but we see a lot of tailwinds over the next year. At some point, it's going to change. But right now, we see a pretty good path to a very good environment for Frontier. Operator: Our next question comes from Atul Maheswari of UBS. Atul Maheswari: I have a question on the government shutdown. There's just recent news that if a deal is not reached by November 7, we're looking at 10% cuts across the top 40 airports. If that were to come to pass, what would be the financial impact on Frontier? Presumably, this is good for RASM for the fourth quarter, but then you would end up carrying excess costs. So maybe can you help us dimensionalize relative to your current guidance, like how much of an incremental risk this would be? Barry Biffle: We -- listen, we've heard about this in the last 20 minutes just like you did. My knee-jerk reaction is we need to figure out how to make sure we can accommodate all of our customers. I guess the good news here is that we're in a low demand period of November. I mean the high demand, obviously, is Thanksgiving. So, I think we'll be able to accommodate everyone. And so I would actually expect on balance, this is probably a positive just simply because of the RASM that we're going to generate on less flights. But I think that the customer disruption is more my larger concern. But I don't see this being a major impact to us. Atul Maheswari: Okay. Got it. That's fair. And then as my follow-up, Boeing recently announced that is expecting certification to MAX 10 next year and with some aircraft in inventory that it already has that is ready to be delivered upon certification. So, assuming this does come to pass and this happens in '26 and the legacies get hold of this aircraft, they're likely to use this higher gauge asset to expand the basic economy type of offering, which directly competes with the product that you have in the marketplace. So, the question then is how much of a risk does this present to Frontier next year and beyond? And what would you do to counter this risk going forward? Barry Biffle: I think the main risk is probably anyone holding the residual value of a 737-100. I don't think it's a challenge to us. I think if you look at the situation, we see less capacity in our markets, not more. And I don't see basic economy improving. I mean just think about that relatively definite math. It doesn't improve your margins to expand basic economy selling product below your cost. So, I don't think that's going to be a major opportunity. You've seen across the industry, domestic profits have been under pressure. So, I think that I think cooler heads are going to prevail on capacity over the next year. This may enable them to be more efficient, but I think you actually see the lesser efficient aircraft leave the United States. Operator: Our next question comes from Brandon Oglenski of Barclays. Brandon Oglenski: Comrades. Good afternoon and thanks for taking the question from the people of comm union of New York. Barry, well, there is going to be free bus travel here. So, I don't know that might be a competitive mode looking forward. But Barry, in all seriousness, can you talk to how Spirit cutting in November has maybe changed the pricing dynamic here closer in on the fourth quarter? Because I suspect that they were pretty close in booked to begin with. Barry Biffle: Yes. I think, look, I mean, look, we were really excited, I would say, 2 months ago when things started changing over there, and we started seeing some book away. And then you got to, I guess, probably second week of September. And unfortunately, what we believe is their book away caused them to drop their fares dramatically. And so we saw a significant drop to fares that had been improving, by the way. I mean, on our last call, we were staring at advanced yields going up considerably year-over-year and then they went down. Now we're getting into a better phase. So, the fares are now restoring. It did do damage to September and again to October. But we're getting into the capacity cut phase. And I think this will give a sugar high to them for RASM, right, because they would consolidate flights. But it's starting to show up and be meaningful to us. And I don't think it's going to benefit this quarter that much. But like this morning, we just -- we haven't had a chance to flow it through, but they pulled out of another 5 cities. So, I expect that this continues to improve, and we think it's pretty meaningful. Where they have cut, we've seen high single digits plus RASM improvements where they're cutting. So this is going to continue. I think this is going to be really meaningful for Frontier. Brandon Oglenski: Okay. I appreciate that response. And you guys talked a lot about loyalty on this call. I mean can you give us your initial impact from Southwest maybe recently? And more importantly, especially as you look to launch First Class, like are you seeing more momentum on that angle? Barry Biffle: Yes. So, look, I mean, we haven't gotten the benefit of First Class yet, but we'll work backwards from your question, and Jimmy or Bobby can chime in. But First Class is going to be wildly accretive, right, because we haven't had that product, and we know the demand is there. So that's going to be worth several points next year. But I think if you look at the loyalty, there's no real benefit, I don't think necessarily from Southwest. It's mainly all the investments we've made over the last year. I don't know, Bobby, if you want to kind of add to that? Robert "Bobby" Schroeter: Yes. This is Bobby. So, we talked about what we added quite a bit in terms of benefits that we've had over the past really 1.5 years, 2 years, a lot of that actually kind of building up to this past year as well as we transformed what we're providing some of the elite tiers, the accessibility we're providing that. So, look, in the end, we've created a program that is the most rewarding in the sky. And it is something where people can get to these elite tiers much faster than you see with other airlines. They actually are getting those benefits where it might be more difficult to see those at other airlines as well. We've talked before, you get a much higher conversion rate on seat upgrades at 80% on our top tiers. They're getting 80% upgrades to our top premium seat upgrade there. So, they're also getting free bagged, and we've added free companions on not only the higher elite tiers, but also that's unlimited companion travel, but also on the credit card, you're getting companion passes as you spend and hit certain milestones. So, just a lot that we've put into this, and you're seeing the engagement there. Look, you have a lot of people out there that are disenfranchised with their other programs, whether those are airlines or other types of travel programs or other credit cards. We're providing an incredible value there, and you're seeing people not only engage in terms of acquisition, but also spend. I mean spend was up tremendously year-over-year because people are wanting to move up that ladder in terms of elite status because they see the benefits that they're getting. Barry Biffle: And I would just add, I mean, and Brandon, you're old enough to remember, I mean, the Starwood program in the 2000s was just amazing, and they kind of used their costs and so forth to build that loyalty and that credit card was one of the -- consistently one of the top-ranked cards. And now that we've kind of got it underway, we sat down 1.5 years, 2 years ago and said, we've got the lowest cost. We should be able to provide the most value and loyalty. And so, we have made methodical changes over the last year, 1.5 years, as Bobby mentioned, and now we're starting to see the benefits of that. And it's early. But when you see 40% jump to the loyalty ecosystem year-over-year, we're on a track. And so, we're doing in the $7, $7.5 range, and we can see that doubling in pretty short order. So, we're pretty excited about it. I think it's one of the key pillars to getting back to sustainable margins, but it's a big part of what we're doing. And the savings that people get are real like I mean it's thousands of dollars a year that you can save if you use this card. And to Bobby's point, when he mentioned kind of the disenfranchise, what we're seeing is the customer that just flies a couple of times a year on one of the big airlines, they don't have the actual tier that they need to get really upgraded. They're #36 on the upgrade list. They never get upgraded. And so, when they take that spend and put it on our card, they actually get rewarded with real loyalty. They get real upgrades, and that upgrade is not going to be upfront plus next year, it's going to be first class. So – so, I think that we've just started. We're kind of in the first inning or 2, but we are going to close the gap on loyalty revenues with the big guys, and this is going to be a material part of our discussions, I think, in the quarters to come. Robert "Bobby" Schroeter: Yes. And just on the -- just a quick add to on First Class. I mean, obviously, we're going to be selling that, and we anticipate a variety of the income coming from just people buying it outright. But that is a product that, again, those disenfranchised customers with other programs have the opportunity to get upgraded to that they would never see. And with us, they will be able to see that at a much lower rate. Therefore, they'll get it faster. So, we're excited about that. Brandon Oglenski: And #36 on the upgrade sounds good to me. I'm usually way behind that. Operator: Our next question comes from Savi Syth of Raymond James. Unknown Analyst: This is Carter on for Savi. I was wondering what you guys are seeing on pricing in your Spirit overlap markets relative to your other markets more broadly? And are you seeing anything different in Fort Lauderdale where you guys most recently added service? Barry Biffle: Look, I mean, I think I mentioned this a while ago, we saw pricing go down after they filed. We've seen that kind of recover now. And we've seen our pricing obviously go up in those markets. So, I wouldn't say it's over, but -- and then obviously, they're trimming capacity and pulling out, so there is no more pricing in some of those. So, I think it's stabilized. Unknown Analyst: Got it. And then just for my follow-up, I want to clarify, does your earlier comment about returning to growth in 2026 mean you're no longer planning on having flattish capacity through the first half of '26? Or is that more of just a comment of returning to growth in the back half? Barry Biffle: It's a very dynamic situation right now. I mean we're watching the competitive situation. And based on how that plays out, we have the ability to flex up or down. But we believe there will be opportunities for us in our cost structure to kind of replace that capacity in several places. And if so, that will dictate growth. But it's -- we'll update everybody by Q1 in our next call because I think most of this -- we believe most of this should be sorted out by then. Operator: Our next question comes from Michael Linenberg of Deutsche Bank. Shannon Doherty: This is Shannon Doherty on for Mike. Barry, earlier this year, we were talking about double-digit margins by the summer of '25. Obviously, Liberation Day threw a monkey wrench into that plan. But do you see a path back to double-digit margins in '26 with the current competitive landscape? And if so, can you help us bridge just there from today? Barry Biffle: Well, look, I mean, we didn't plan on all of the things that happened in the turmoil in the front half of this year and what has happened. But I can tell you that as far as our pillars of kind of path back to sustainable profitability, look, I think doubling our loyalty revenues from where it is, introducing first class, getting that premium, getting kind of our fair share of that premium as well as the fair share of loyalty. I think the competitive capacity reduction, as we've talked about, I mean, that's going to be a huge tailwind for us going into next year. And then we're going to double down on our costs. I know everybody kind of accepts the inflation, but we're going to double down. We hope to have all that ready to lay out at the next call. But you're going to see kind of another wave of us kind of pushing further down on cost to ensure that we maintain a wide margin of cost advantage versus the industry. And we're going to continue to improve our operation. Our complaints are down dramatically year-over-year. We continue to be kind of 30%, 40% down every month year-over-year in complaints, and that's kind of tied to what's happened with our improvement in the operations. So, I'm not going to declare the day we're going to get back to any margin target, but I can tell you that there's plenty of fundamentals that are in our favor at this point. Shannon Doherty: And maybe a follow-up on like thinking our growth for next year. Will Spirit cutting deeper than 20% next year, maybe a lot more be the determining factor of unlocking growth again? I mean, clearly, you are carrying a lot of extra costs, taking down aircraft utilization and you want to get back to growth. So, I'm just trying to figure out what gets you there. James Dempsey: Yes, Shannon, it's Jimmy here. Look, we're watching what's happening in terms of network deployment across the industry, including Spirit at the moment. And there are certainly opportunities that are existing. You've seen us launch some stuff across the United States in the last couple of months that fill in for some capacity that we think is going to be adjusted in their network. Whether that drives material growth next year or not, we don't know. We've got to see how things develop in the next 2 or 3 months. Hence, we're kind of deferring to the next earnings call to give you an insight into our growth. But clearly, we have a substantial body of aircraft that we can deploy to infill for any disruptive capacity that comes out of the marketplace in the next couple of months. And so, we're positioned for that. As I said in the last earnings call, it does take time from a growth perspective to hire and train pilots and get them deployed in our network. And that's typically a 6- to 8-month process. And so, any meaningful growth will occur sometime Q2 or Q3 or Q4 next year, depending on our view over the next couple of months and what we want to do in terms of growing the airline into opportunities that crop up. Operator: Our next question comes from Duane Pfennigwerth of Evercore ISI. Duane Pfennigwerth: Just one question for me for the team. How has your thinking about consolidation of the ULCC sector evolved or changed over the last 90 days? Barry Biffle: Good to hear from you, Duane. I don't know that it's changed. I think we're going to see -- and I've said this before, I think you're going to see less capacity in the United States. And I don't know if that's a U.S. ULCC thing. I think it's just a domestic capacity thing. And I think it will be far beyond just the ULCC space. I think you're going to see a lot less seats. Consolidation is one of the mechanisms to help facilitate that, but it's not the only way to get there. But I do think there'll be less seats. There's another carrier that is not a ULCC that we suspect is going to shrink a considerable amount over the next year. So, I think a seat is a seat and the more that go out, it's probably constructive to the supply and demand balance as we move into '26. Operator: Our next question comes from Scott Group of Wolfe Research. Ryan Capozzi: This is Ryan Capozzi on for Scott. So, aircraft utilization has been down pretty significantly so far this year. Just curious how we should think about utilization levels into 4Q and really more so into next year? Barry Biffle: Yes. I mean from a utilization standpoint, I mean, I think to Jimmy's point, when you look at the lead time that's needed to ramp that up, I mean, from the environment that we sit in today, the overall macro environment, I think you'll see consistency and where we've been Q3 to Q4 from a utilization standpoint. But then as both Jimmy and Barry have mentioned, as you look into '26, we need to evaluate what that landscape looks like and how we want to move forward with utilization. Obviously, the higher you're able to drive that, that brings down unit cost. So, there's positive there, but you just need to balance that with the larger macro. James Dempsey: Yes. And just to give a little context, we have -- there's 2 things going on with the fleet. One is you have a delivery order book that can provide growth, and then you can also utilize your assets more. And what we've been doing in the last 8 to 9 months is reducing some utilization on the asset base. What you're likely to see as you progress through next year is growth more on peak days and off-peak days through new aircraft deliveries, which is healthy growth coming into the business. Whether we choose to do higher utilization or not, that's something that we have to consider going into next year to see where the competitive capacity environment looks. Ryan Capozzi: Got it. Appreciate the color there. And then I guess on competitive capacity, I think you had mentioned 2 percentage points of improvement in 4Q. Any sense of what level of reductions you're expecting in 1Q here? James Dempsey: Look, we haven't quantified the level of reductions that we expect. As people solidify their schedules going into Q1, we'll have more of an insight into that in the coming month or 2. Operator: Our next question comes from Jamie Baker of JPMorgan Securities. James Kirby: This is James on for Jamie. A lot of questions about domestic capacity. Maybe just a question on the international routes you guys announced and what you're seeing there, particularly how RASM is trending into 4Q and 2026? Barry Biffle: Yes. I mean -- so just you're talking about the fourth quarter starts. We've been seeing some pretty good results happy with the new routes, specifically, as you brought up within the Latin America kind of VFR or Latin VFR routes that are launching sort of in the holiday, Christmas, three Kings peak period. So pretty excited about the results that we've been seeing so far. James Kirby: Okay. Got it. And then for my second question, we're seeing smaller regional airlines enter the market? I'm just in the past few years, are you seeing any -- particularly in the routes that Spirit exited, are you seeing any of those airlines come in to fill that capacity that you're now competing with? Barry Biffle: No, we're not really seeing that. I mean, look, I think the landscape has become pretty clear. I mean Frontier has been the one to outplay and out last. And so, I don't think that -- I don't see a new entrant trying to come in on some of the things that we're doing. Operator: Our next question comes from Tom Fitzgerald of TD Cowen. Thomas Fitzgerald: I'm curious on the loyalty program, if you're -- where you're seeing the most strength in sign-ups and whether it's just kind of any place where you have a base or a decent enough schedule density of those particular markets that stand out? Barry Biffle: Yes. Look, it's obviously where we have bases. We've got 13 bases and then we've got large concentrations, right, in other cities, Raleigh, Baltimore, New York and so forth. But I mean, it's where you would expect. I mean customers, you've got to be able to earn it when you fly and you've got to be able to use it. So, it kind of fits our geography. But I think the big thing that's changed, I mean, obviously, to see this kind of growth when we're not actually growing the airline right now is actually really impressive. James Dempsey: Yes, I mean, to echo what Barry said, you're going to see it where there's relevance on both the network and the program and where you can -- you're looking for aspirational opportunities where you can go and then, frankly, the benefits you can get from that. And we're hitting on all those things. Thomas Fitzgerald: That's really helpful. And then just curious on first-class seating as you kind of just keep going up market. Is there a -- do you assume any like time for that -- those products to mature in the market? Or do you think it hits right away? And I'm wondering if there's any like kind of if you're upgrading a lot at the beginning to kind of entice people to get them familiar with the product if then it shows up in the revenue, but if it's a lot of it's upgrades or if there's like a noncash component. Barry Biffle: Yes, thanks. So look, I mean, we're not expecting it to go to full maturity. That could take honestly, years. I mean -- but you're going to see an immediate benefit in the product moving to first from just having Upfront Plus. It took us about a year for Upfront Plus. At first, a lot of people got it for free and so forth. And our top Elites will get upgraded into it, which is what helps kind of feed the loyalty asset ecosystem. But you're going to mature as more people figure it out. I mean, at the end of the day, we've observed in the United States a huge change in the appetite for leisure customers to pay for first class seats. And we believe that given our cost structure, we can deliver a first-class seat cheaper than anyone. And so we're going to obviously benefit from not only having a premium product, but it's going to be priced at a level that you won't see for the big guys. So, I mean, I wouldn't be surprised that we're going to be priced under a premium economy seat in many cases. But yet for us, that could double the revenue we're getting per passenger. So, it's great for us, and I think it's going to be great for consumers, but it could take 1 to 3 years to get -- reach full maturity. But it will be huge. I think it's going to be huge, not just for our kind of our revenue on board, but also in the credit card because at the end of the day, I mean, that frustration about people getting upgraded at the big airlines, you're going to get real value with Frontier with that product, but it will take time. Operator: Our next question comes from Daniel McKenzie of Seaport Global. Daniel McKenzie: I just have 2 house cleaning questions and then one other question just following up on Duane's. But the house cleaning questions, it looks like full-time equivalents are down 6% year-over-year, but unit labor costs are up 10%. So I'm just wondering if you can square that dynamic. And I guess what I'm really wondering here is if it's just the beginning of sort of unit cost derisking for future labor deals. And then the second housecleaning question is, what percent of the network you expect will be premiumized, so to speak, by year-end '26? Barry Biffle: Well, there are several things going on, on the salary wage and benefits. I mean we, we stopped hiring flight attendants and what happens when you're looking at in your numbers, we actually were largely kind of rightsized, I guess, on the flight attendants, but we carried a lot -- hundreds and hundreds of extra pilots. So, I think it's a little -- I think that's just a mathematical nuance. As we get back to hiring flight attendants as an example, I think you'll see the numerator and denominator change. And I'm sorry, what was the second question? Daniel McKenzie: Just the percent of the network that will be premiumized by year-end '26. Barry Biffle: Okay. Well, 100% of the fleet will actually have the first class product. And look, it's 8 seats. We've got 202, give or take. I mean, it's going to be 4% of your seats. So, it's pretty rough -- it's pretty simple math, right? If you take 4% of your seats and we end up getting paid close to double what we were getting on the others, once this is rolling out, this is a material jump in your RASM. Daniel McKenzie: Yes. Second question here, just following up on Duane's question. Some of Spirit's creditors are pushing their management team for a merger and Frontier is the most -- one of the most logical airlines, of course. And I guess just to kind of push on that a little bit further is, has that ship sailed as far as Frontier is concerned, just given the network overlap? Or is that -- I guess my question really is if that were to become a possibility at some point in the future, is that network overlap manageable, say, with carve-outs or givebacks? Barry Biffle: I'm not going to comment on merger. We spent a lot of time on this in the past. I've spoken about it a lot. We're not going to comment on I'll go back to, we see significant opportunity for Frontier focusing on our business and what we see is pretty significant tailwinds to our business due to competitive capacity. And we don't see that changing. We've not seen anything that's going to change that opinion. And again, every day, it seems to get better for us. I mean they just closed another 5 cities or announced closing another 5 cities today, including like Phoenix, St. Louis, Milwaukee. So, these are all key cities for Frontier. So, we see pretty good upside, but we're not talking about a merger. Operator: Our next question comes from Christopher Stathoulopoulos of SIG. Christopher Stathoulopoulos: Barry, I wanted to ask for an update on the revenue initiatives because there's a lot going on here. I heard [ $715 ] per passenger in the third quarter. But the comment you made 2 questions ago, I think it was first class priced. I think you gave a price point or you quantified a certain percentage below a basic economy seat or what I took to be an entry-level product versus, I'm assuming network peers. Barry Biffle: I said premium economy on one of the big airlines, not basic. Christopher Stathoulopoulos: Okay. Okay. Maybe -- I think that's an interesting point. If you could speak to is that in select markets? And I think you said that that's going to take 2 to 3 years to mature. I think that's an important point and one that I hope you could give some more color. Barry Biffle: Look, I think we'll get somewhere between 60% to 80% of the benefit within the first year, right? I think for it to fully mature, it will take you a few years. But it will be additive incremental -- it will be positive ROI within months. I mean -- and so -- and when you think about the pricing, I'll just go back to the pricing. I mean, if you look where we fly today, it's not uncommon for us to have a $49 fare and maybe the legacies have got a $69, $79 basic economy, but then they're $400 or $500 for first class. And so I think you could see us easily being in that $200 to $250 range for first class. And it's going to be a smacking deal for anybody that wants to fly first class, but it's going to be a huge improvement. I mean we're going to take 4 seats off the plane that were actually the lowest fares that we were selling, and they're now going to become the highest fares we're selling. That's a huge move on your RASM when you do something like that. So this will be a massive improvement to us. But we -- I mean, look, the pricing is going to be dynamic by route, by day and depending upon the situation. Christopher Stathoulopoulos: Okay. Great. And the comment on the down to competitive capacity for the fourth quarter, I'm guessing that's your system or select routes. And then if there are any markets where you're seeing, I guess, better or worse in so far as additions or deletions from competitors? Barry Biffle: Yes. I mean there's a number of routes where -- I mean, Jimmy spoke about this in his prepared remarks. But Jimmy, I don't know if you want to remind them of the numbers there. James Dempsey: Yes, we've seen a significant change in 2 areas. One is where they've exited markets. And so we've seen them exit about 36 routes that overlap with us. And we've also seen a significant reduction in frequencies, about 30% across 41 other markets. So, it's a considerable change in overlap capacity between us and Spirit. And it's across the system in a lot of cases. But the predominance particularly in the West. Operator: I am showing no further questions at this time. I would now like to turn it back to the Chief Executive Officer, Barry Biffle, for closing remarks. Barry Biffle: I want to thank everybody for calling in. We're really excited about the future and things have really kind of turned around from a foundational perspective. So I look forward to updating you again and talking to you again in the new year. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Graeme Jennings: " Renaud Adams: " Marthinus Theunissen: " Bruno Lemelin: " Sathish Kasinathan: " BofA Securities, Research Division Tanya Jakusconek: " Scotiabank Global Banking and Markets, Research Division Anita Soni: " CIBC Capital Markets, Research Division Mohamed Sidibe: " National Bank Financial, Inc., Research Division[ id="-1" name="Operator" /> Thank you for standing by. This is your conference operator. Welcome to the IAMGOLD Third Quarter 2025 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Graeme Jennings, Vice President of Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call today. Joining us on the call are Reno Adams, President and Chief Executive Officer; Martin Newson, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Annie Torkia Lagace, Chief Legal and Strategy Officer; and Dorna Quinn, Chief People Officer. We are calling today from IAMGOLD's Toronto office, which is located on Treaty 13 territory on the traditional lands of many nations, including the Mississaugas of the Credit, Anishinaabe , the Chippewa, Haudenosaunee and the Wendat Peoples. At IAMGOLD we believe respecting and upholding indigenous rights is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on this call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP Financial Measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading Qualified Person and Technical Information. The slides referenced on this call can be viewed on our website. I'll now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. This is an exciting time for IAMGOLD with another quarter of production, led by strong performance at Cote Gold and Esakana mines, helping to fuel record cash flow generation for the company. The current strong gold market has been very well timed for IAMGOLD, coinciding with the advancement of our assets, allowing the company to advance our strategic plans ahead of schedule. We are proud of this transformation and also to introduce today our new logo and refreshed brand, which we believe reflects who we are today. We are extremely proud of our roots and history. But now our name stands for innovative, accountable mining. IAMGOLD is a modern gold mining company that is proudly Canadian with strong cash flow and significant long-term growth opportunities ahead. We mine with a mining redefined purpose in mind, putting safety, responsibility and people first. We hold ourselves accountable and embrace change and drive innovations at every level from smarter systems and technology to better ways of working. There are many highlights to discuss for IAMGOLD today from our operations, financial achievement and an improved share buyback program, which remains subject to TSX approval. We will also discuss our forward-looking plans, including the expansion scenario for Cote Gold, which is expected to demonstrate significant upside to the current mine plan at Cote. Finally, we will cover the recent announcement of acquisitions to consolidate the Chibougamau region in Quebec to create an elegant complex. These transactions further position IAMGOLD as a leading modern Canadian-focused multi-asset gold mining company. I am proud of our team's achievement and remain confident in our ability to deliver enduring values for our investors and partners while maintaining a steadfast commitment to safety and accountability. Turning to the quarter, and we're now on Slide 5. At IAMGOLD, the safety of our people and communities remains our top priority. In the third quarter, our total recordable injury rate was 0.56, a 15% improvement year-over-year on a 12 months rolling average and comparing well with our industry peers. We are focused on advancing our critical risk management program, including an important integration of contractor into the IAMGOLD way of safety management with the goal to reduce high potential incidents. Looking at operations on an attributable basis, IAMGOLD produced 190,000 ounces of gold in the third quarter. The quarterly performance was led by strong results at Cote, which produced a record 106,000 ounces on a 100% basis. followed by improved quarter-over-quarter attributable production at Essakane as the mine saw grades bounce back while mining deeper into Phase 7 of the pit. Year-to-date, IAMGOLD has reported 524,000 ounces of attributable production. As we will walk through in a moment, production is expected to be the highest in the fourth quarter, positioning the company well to achieve our guidance target of 735,000 to 825,000 ounces of gold this year. On a cost basis, IAMGOLD reported third quarter cash cost of $1,588 an ounce and an all-in sustaining cost of $1,956 an ounce. Costs remain higher year-to-date as the record gold prices directly translate into higher royalty compound with the new royalty regime in Burkina Faso as well as higher unit costs at Cote from an increased proportion of supplementary contracted crushing to stabilize operations during our first full shutdown and until the second cone crusher is installed in the fourth quarter. Cash costs and all-in sustaining costs for the year are expected to be at the top end of the guidance range, though we expect to see a strong end to the year with higher expected cash flow in the fourth quarter on an improved production and higher margins. With that, I will pass the call over to our CFO to walk us through our financial highlights. Maarten? Marthinus Theunissen: Thank you, Rud, and good morning, everyone. It was indeed an important quarter for IAMGOLD as we were able to use the strong financial results to take significant steps towards our goal of delevering the company and advancing our plans to reward shareholders. Mine site free cash flow was $292.5 million in the third quarter, a record achieved of IAMGOLD's high production levels following the ramp-up of project, increasing the company's exposure to the gold price during a record high gold price environment. The record mine site free cash flow improves our financial position and the company's net debt was reduced by $210.7 million to $813.2 million at the end of the third quarter. IAMGOLD had $314.3 million in cash and cash equivalents and approximately $391.9 million available on the credit facility resulting in total liquidity at the end of the third quarter of approximately $707.2 million. As we noted last quarter, Essakane declared a significant dividend in June of approximately $855 million, representing all of the undistributed profits of Essakane up to and including the 2024 financial year. IAMGOLD's 85% portion of the dividend net of taxes was approximately $680 million and is expected to be paid over the next 12 months through a revised framework that enables payments to be made at any time of the year based on the cash generated in excess of working capital requirements by Essakane. At September 30, $186 million of IAMGOLD's consolidated cash and cash equivalents was held by Essakane in Burkina Faso. -- which was used to pay IAMGOLD a dividend of $98 million in early October. The remaining portion of the company's dividend receivable was converted into a shareholder account with the first payment against the shareholder account of $56 million also received in October. The company expects to receive monthly payments going forward. These funds were used to make additional payments of $170 million against the company's second lien notes with $130 million of the original $400 million remaining outstanding on the 4th of November. Holistically, when we consider our liquidity outlook under high gold price environment, we are in the fortunate position to continue to repay debt and commence in the not-too-distant future on another of our strategic initiatives, which is to reward our shareholders. Accordingly, subsequent to quarter end, our Board of Directors approved a share buyback program to be put in place through an NCIB program, allowing for the purchase of up to approximately 10% of IAMGOLD's outstanding common shares. All common shares purchased under the NCIB will be either canceled or placed under trust to satisfy future obligations under the company's share incentive plan. IAMGOLD will file a notice of intention to implement an NCIB with the TSX and which is subject to TSX approval. Following the approval, IAMGOLD will be allowed to purchase these common shares over a 12-month period in the open market. This initiative reflects management confidence in the company's long-term value and its commitment to disciplined capital allocation. The actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the company's financial performance, the availability of cash flows and the consideration of other uses of cash, including capital investment opportunities and debt reduction. Turning to our financial results. Revenues from continuing operations totaled $706.7 million from sales of 203,000 ounces on a 100% basis at a record average realized price of $3,492 per ounce. Cost of sales, excluding depreciation, was $324.2 million and adjusted EBITDA was a record $359.5 million compared to $221.7 million in the third quarter last year. At the bottom line, adjusted earnings per share in the third quarter was $0.30. Looking at the cash flow waterfall on the left side of Slide 7, we can see the year-to-date impact on our operating cash flow of the gold prepay deliveries, which we completed in June as well as the impact of the second lien term payment and the dividend payment to the government of Burkina Faso following its account driven declaration. On a mine site free cash flow IAMGOLD generated $292.3 million in the third quarter, including $135.6 million from Cote and $150.5 million from Essakane, driven by higher revenues due to the higher realized gold price, partially offset by higher production costs. And with that, I will pass the call to Bruno Lemelin, our Chief Operations Officer, to discuss our operating results. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote Gold, it was a strong quarter with Cote reaching new milestones while maintaining stable performance at the processing plant. Notably, the plant underwent its first full shutdown in August, which was executed successfully. I'm very proud of our team at Cote. It's important to remember that it's still the first full year of operation at the mine with nameplate throughput achieved at the end of Q2. Our teams are learning every day how to better position Cote for success, including the refinement of the mine plan of the maintenance schedules and identifying efficiency to drive continuous improvement. Now looking at the third quarter, Cote produced 106,000 ounces on a 100% basis, which is a record quarter of production for the mine. Mining activity totaled 11.5 million tonnes in the quarter with 3.8 million ore tonnes mined equating to a strip ratio of 2:1. The average grade mined was 0.96 gram per tonne in line with plan and demonstrating good reconciliation with our reserve and grade control model. Looking ahead, mining activities will continue to work on extending the pit perimeter to support efficient gold mining and also in preparation for the future expansion of Cote. On processing, mill throughput totaled 3 million tonnes in the quarter, averaging near nameplate in July and September. The first annual maintenance shutdown in August was successful with the comprehensive maintenance cycle completed and including the replacement of the high-pressure grinding roll tires, relining of the ball mill, changes to the primary crusher outer shell and additional maintenance work on the electrical infrastructure. Head grade averaged 1.18 gram per tonne with feed material comprised of a combination of direct feed ore and stockpiles. Mill recoveries averaged 94% in the quarter, which continues to be above design rates. Turning to cost. A major driver of cost this year has been associated with the temporary aggregate crusher, which is being contracted to support the processing plant. The plant was built with a single secondary cone crusher as part of the crushing circuit. And through day-to-day operations, we learned that this is a bottleneck. This has been addressed with the addition of a second cone crusher to sustainably achieve the nameplate throughput rate and provide redundancy during shutdowns. We accelerated the push to achieve nameplate to midyear from our original target of Q4 in part because we found a way to maximize throughput and offset the bottleneck by incorporating an additional refeed system using a contractor aggregate plan. Moving ahead, nameplate by 5 to 6 months allows for maximizing tonnes milled today versus waiting for the second cone crusher to provide the additional facility. This may account for an extra $4 per tonne milled, yet brings the opportunity to monetize tonnes already mined through the end of the year. In the third quarter, the aggregate crusher processed a higher proportion of ore due to the shutdown in August. The use of the aggregate crusher is expected to be reduced following the installation of the secondary cone crusher in Q4 and eventually eliminated. Looking at mining costs, we averaged $4.51 per tonne in the third quarter. Mining costs are higher than planned due to higher tire and wear and also impacted by the operation of the aggregate crusher and the feed system. The aggregate crusher requires the utilization of mining equipment to feed it, including haul trucks and a shovel, resulting in higher amounts of rehandling that is accounted to mine. These trucks will decrease into 2026 as further operational improvements are made and the elimination of the contracted aggregate plan. Milling unit costs also increased in the quarter, averaging $22 per tonne mill. The temporary aggregate crusher system has a direct impact on our processing unit cost as it is more costly to operate. And in the third quarter, we rely on it more due to the August shutdown. Overall, we estimate around $6 per ton was associated with the cost of the aggregate crusher in the third quarter. Maintenance costs to replace the HPGR tire and wear components accounted for $1.87 per tonne during the quarter. Unit costs are expected to decline over the course of 2026 following the installation of the additional cone crusher in the fourth quarter of this year. Looking ahead, we remain confident in our Cote Gold production guidance of 360,000 to 400,000 gold ounces on a 100% basis, which is essentially a doubling of production from last year. As noted here, we expect cash costs to exceed the top end of our updated guidance range of $1,100 to $1,200 per ounce sold, primarily due to a combination of higher royalties impacted by a significant increase in gold price, an increase in the expected usage of the supplementary crushing during the year to support the mill feed and the expensing of certain parts and supply that were previously expected to be capitalized. Taken together, Cote is performing very well from operation of this site less than 20 months after pouring its first gold. We are looking forward to seeing the impact of the installation of the second cone crusher in Q4 on availability and throughput paving the way for future expansion option, which leads us to what is the most exciting slide, the advancement of the Cote Gas and super pit scenario. As we have discussed previously, we are working towards announcing in 2026 an updated mine plan that envision the Cote operating at a higher throughput, targeting a significantly larger ore base from both Cote and Gosselin. The first step is drilling out the super pit of Cote and Gosselin to provide the resource foundation for the mine plan. Our drills are busy at work with over 50,000 meters drilled so far this year with the goal to infill and upgrade mine and bring the bulk of mineralization there into measured and instated. Our currently designed, Cote has the mining capacity to average an annual ore mining rate of 50,000 tonnes per day versus our current nameplate processing rate of 36,000 tonnes per day. As part of the 2026 technical report, we will look to find the right balance between an increased processing rate with mining rates targeting the combined Cote Gosselin super pit. In this scenario, we anticipate a mine plan that prioritize the expansion of the plant, which should be implemented years before other major capital items that would be part of the super pit scenario, including tailings capacity expansion and all. The updated mine plan and technical report is expected to be completed by the end of next year. And in the interim, we will continue to focus on optimizing Cote, reducing our cost profile and capturing low opportunities for operational improvements and capacity expansion. Turning to Quebec. In the third quarter, Westwood produced 23,000 ounces, bringing the year-to-date production to 76,000 ounces, tracking below the bottom end of the guidance range of 125,000 to 140,000 ounces. The third quarter at Westwood saw similar results as prior quarters this year as mining activities underground operated to lower grade stopes encountering areas of challenging ground conditions resulted in higher-than-expected dilution and lower mining recoveries. The teams are implementing mitigation measures that include changes in blasting techniques and refinement, stope design and sequencing. We are already seeing improvements from these efforts in October with the average grade so far this month from underground averaging over 9 gram per tonne in the month. The Grand Duc open pit added another quarter of decent ore volumes with a reported of 315,000 tonnes mined. Open pit activities from Grand Duc are currently being evaluated for an expansion and extension of the pit. The outline scenario would push the pit into Phase 4, which would allow for mining until 2027. Mill throughput in the third quarter was 250,000 tonnes, which was below the average throughput rate over the previous quarter due to a 14-day shutdown of the plant in July for the replacement of a critical gear in the grinding circuit, resulting in plant availability in the quarter of 75% versus 90% in the same prior year period. We expect to see mill throughput return to near 90% as we see in the fourth quarter. As a result of the low availability and lower tonne mill, we saw an increase in milling unit costs in the quarter. Likewise, mining costs also remained elevated due to an increase in the number of stopes prepared underground to set up the mine for the remainder of the year, combined with an increase in mining cost, labor cost and exclusive and power consumption. Together, cash costs were $1,924 an ounce in the quarter. Looking at this year, as noted, Westwood production is expected to be below the bottom end of the range of 125,000 to 140,000 ounces. Accordingly, and despite unit cost improvement expected in the fourth quarter, annual average cash costs are expected above the guided range of $1,275 to $1,375 per ounce and AISC is expected to be above the range of $1,800 to $1,900 per ounce. The turnaround in October is expected to be sustainable as we continue to refine stope design and the varying underground condition at Westwood. Despite the challenges in the first 9 months of this year, I'm very proud of the team there as they have demonstrated their innovative and accountable mindset to operation, safety and environmental care. Turning to Essakane. It was a strong quarter for the mine with production of 108,000 gold ounce on a 100% basis or 92,000 ounces based on our 85% interest. Production rebounded on higher grades as mining activities were deeper into Phase 7. Mining activity totaled 8.7 million tonnes with ore tonnes mined of 3.2 million tonnes, equating to a strip ratio of 1.7:1. Total tonnes mined was lower than prior periods as the mining fleet did not operate at full capacity in August due to a fuel shortage in the country. The situation improved in September and the mining fleet was able to operate at capacity to end the quarter and into October. Net throughput was 3.1 million tonnes at an average head grade of 1.18 grams per tonne. The transition to the higher grade benches in Phase 7 was initially expected earlier in the year, but was realized in the third quarter. Grades have continued to reconcile positively to the reserve model in October, positioning the mine for a strong fourth quarter. On a cost basis, Essakane reported cash costs of $1,737 per ounce and AISC at $1,914 an ounce in the quarter, an improvement on the prior quarter. Despite the production improvement costs remained elevated in the quarter. Over the same period last year, royalty costs have increased 61% on a per ounce basis due to the strong gold market and the new royalty decrease. Royalties accounted for $283 an ounce in the third quarter. Additional drivers include a higher proportion of mining costs being expensed as well as higher maintenance activities and an increase in consumable costs, including diesel and grinding media. With the equivalent labor, contractor and facility costs also increased due to the appreciation of the local currency, which is drag to the euro. Looking ahead, we estimate that Essakane will be at the midpoint of the 100% basis estimate of 400,000 to 440,000 ounces, which equates to the lower end of the attributable production guidance target based on 85% of 360,000 to 400,000 ounces. Production is expected to be higher in the first quarter due to the higher grade as the mining sequence move in the primary zone of Phase 7. Cash costs are expected to be at the higher end of the guidance target of $1,600 to $1,700 per ounce sold and AISC is expected to be $1,850 to $1,950 per ounce sold. Looking beyond next year, we are initiating conversations with the government on the mining lease renewal when ours expires in 2028. While the cost of operations in country have risen, Essakane continues to be a world-class mine and an important member of the Burkinabe. The mine has over 2 million ounces in reserves and is positioned to generate significant free cash flows moving forward. With that, I will pass it back to Renaud to discuss our latest exciting news coming from Chibougamau Chapais. Renaud? Renaud Adams: Thank you, Bruno. I really want to take a moment here to talk about our news from the 2 weeks ago when IAMGOLD announced the proposed acquisitions of Northern Superior in Orbec mine for total consideration of approximately $267 million in shares of IAMGOLD and approximately $13 million in cash. The strategic rationale for these transactions are clear when you look at this map here. Our goal was to consolidate IAMGOLD's land position and gold resources in the Chibougamau Chapais district, where IAMGOLD Nelligan and Monster Lake assets are located, creating the next great Canadian mining camp. Our Nelligan deposit has 3.1 million ounces indicated and another 5.2 million ounces of inferred with rapid growth from minimal drilling in recent years. Nelligan is a large-scale open pit style of deposit with average grades around 0.95 grams a tonne. Monster Lake located approximately 15 kilometers north of Nelligan is a high-grade underground style project. Prior to the acquisition announcement, we were looking at putting out economics on Nelligan and Monster Lake envisioning a project that would take most of the ore feed from Nelligan with a high-grade kicker from Monster Lake. The potential additions of Philibert may result in a revised time line of technical study and proposed mining scenario. Northern Superior's primary asset, Philibert, is an open pit style deposit located 8 kilometers northeast of Nelligan. Philibert has estimated mineral resources of approximately 2 million ounces at an average of 1.1 grams of gold, making it at this time, smaller but yet higher grade than Nelligan. In the consolidated scenario in a conceptual mill to pit and underground complex mine plan, we envision Philibert as having the potential to be the initial deposit due to the higher grade infrastructure advantage, providing important synergies versus a stand-alone Nelligan. This year, we have drilled over 16,000 meters at Nelligan and over 17,000 meters at Monster Lake, with both projects having seen the programs upside and continued success at the drill pit. Upon completion of the transaction, we look forward next year to putting together a comprehensive program at Philibert to extend and expand mineralization as we look to bring all these assets together. As of today, the combination of Nelligan and Monster Lake with Northern Superior's assets an Orbec's property, which are now referred as the Nelligan Mining Complex will rank as the fourth largest preproduction gold camp in Canada with estimated mineral resources of over 3.8 million ounces indicated and 8.7 million ounces inferred. The closing of the proposed transactions remain subject to shareholder votes from both Northern Superior and Orbec shareholders as well as other customary closing conditions for transactions of that nature. Together, this asset has a bright future, and we look forward to welcoming the Northern Superior and Orbec shareholders to the IAMGOLD team. It will be an exciting year for us with significant value growth opportunity ahead and many catalysts, starting with the upside scenario for Cote Gold, but also including the advancement of the Nelligan mining complex as well as the valuable contribution of Westwood and Essakane. So thank you for your support. With that, I would like to pass the call back to the operator for the Q&A. Operator?[ id="-1" name="Operator" /> [Operator Instructions] First question will come from Sathish Kasinathan with Bank of America. Sathish Kasinathan: Congrats on a strong quarter in addition to initiate share buybacks. My first question is on Cote Gold. So once the secondary crusher is installed, can you give us a sense of like what the anticipated cost improvements could be? Maybe talk about how you see the exit rate of cost as you exit 2025? Renaud Adams: Yes. It's an excellent question. As we mentioned, we appreciate the very high record free cash flow at Cote and everywhere, but that doesn't take away our focus on cost. We made a conscious choice in the Q2 to maintain the aggregate plant functioning, maximizing throughput, maximizing grade by allowing more rehandling and maximizing grade and production and free cash flow it has worked just perfectly. Now as you've mentioned, moving forward. So as Bruno mentioned in his note or Maarten both, there's about $6 a tonne right from the start on a per tonne of ore by using and operating the aggregate plant. And we think that with the second crusher, we'll be capable to generate our own stockpile internally. So that's one of the focus. So right from the start down the road, and I'm not saying that's going to be a walk in a park in a quarter. But on the milling side, definitely, our objective remains to stabilize eventually down the road towards the $12. We appreciate that there are other assets maybe that could do slightly better. But for us at $12, we believe with the kind of design and configuration, that's probably achievable. There will be some transitions, of course, Q1, probably a transition as we enter Q2. On the mining side, yes, we appreciate the -- again, there's rehandling has been a big component of it. Could we stabilize in the short term more towards the 350. So we're working on our plan as we speak. But we believe that the big component here is to be capable to operate without the aggregate plan, which will have a big effect. There's other aspect we need to improve. We need to improve significantly tire consumption, life on it. There's probably room to improve significantly, 50%, 60% consumption. So all that will have an impact on it. Our objective remains down the road to be as close as the $3 per tonne mine. I know there's been inflation is all over the place and everyone is facing the same. But this is an objective, not going to be there at the start of the year, but as we advance in the year, 3 and 12 remains our strategic target. And that's the risk become pure math. You mine at the reserve grade as we're doing, you try to uplift your grade as you separate the lower grade. And with the 400,000 ounces plus and with a better unit cost and a very low strip ratio at Cote, we definitely see this asset performing amongst the best leading on the cost side. That's what we see. Bruno, do you want to add anything? Bruno Lemelin: That's exactly right. The mining costs will have better performance once we stop using the aggregate crusher, producing much more leading inland. There's also many projects in terms of improving drilling performance as we drive vertically in the pit with less fracture time. So we expect improvement quarter after quarter. Renaud Adams: No, no, that's what we could say at this stage as we complete our plan for next year. Sathish Kasinathan: Yes. That's helpful. Maybe one follow-up on the share buybacks. So I understand that you will begin share repurchases after you pay down the $130 million in debt. But is there like a minimum target in mind maybe tied to a certain percentage of free cash flow that we should look at in terms of the potential for buybacks going forward? Marthinus Theunissen: Once we have the program in plan by the end of the year, it gives us that flexibility to start allocating capital to the different parts of the business. And we're kind of looking at it in third, where we would look at internal growth and opportunities as well as we still want to repay the amount drawn credit facility, $250 million. And then the third part is buying back shares. We don't have to do this sequentially. We can do all of this at the same time. So we were kind of breaking it down into 2/3 and starting next year, we'll look at the cash being generated and then do it that way. So that's kind of as close as a percentage, I guess, 1/3 that we can give at this point. [ id="-1" name="Operator" /> The next question will come from Tanya Jakusconek. Tanya Jakusconek: On the balance sheet. I really was impressed on you getting your net debt to EBITDA down so low versus Q2. Sorry, the 4 calls going on at the same time. So I've missed a lot of yours. I want a clarification, if I could. Slide 11, you have a new technical report and mine plan to be released in the second half of '25. I thought that was coming in the second half of '26. Has that been moved forward? Renaud Adams: No. If there was any mention to '25, that would be a typo or a mistake, Tanya. But no, we remain with disclosure of our next Cote Gold expansion late '26. Tanya Jakusconek: No, no. I just -- I joined when you talked about Westwood and so it was a slide before, and I noticed that and I said, Oh my God, they've moved it. I wasn't aware of it. Okay. No worries. And just maybe still on Côté, if I could. You talked about bringing the processing cost down to about $12, the mining cost down to 3. We had talked on the previous conference call that you thought you would get there by mid-2026. Should it be fair to say that we're still looking for that second half of '26, where we should see these costs get into that range? Is that a fair assumption? Renaud Adams: Well, there is one thing that we don't control and it's some external factors. So let's start with that, like if there is an inflation. So I'm looking at our peers, I'm looking at what we could eventually do, and this is our objective. I think the parking the aggregate plan, you would start like transitioning in Q1 and starting in Q2, you must see the effect of much less rehandling, more direct feed to final destinations, a little bit of -- we're going to continue to rehandle around the HGO and if your mine, your grade is lower for a period of time, you would swap in an NGO. But yes, starting Q2, this is where we start seeing effect of it and continue to work very hard towards achieving the lowest. But we need to control our consumptions, mostly around, of course, mentioned tires and rehandling and so forth. I think we're competitive when it comes to the procurement and so forth. So it's really on consumptions and better control of our maintenance. We believe that the HPGR should be running better at 2, allowing to feed it at a smaller size and so forth and increases life. So it's not just like a ticket type of item, but the big impact would start with the pricing. And the cost will be what it would be in the sense that we cannot control some external factor. But what we can control, this is our intention in '26 to get it done. Tanya Jakusconek: Okay. SO I should sort of mid-'26 that we should hopefully be there. Renaud Adams: Yes, mid-'26 you should start. Tanya Jakusconek: Yes. Okay. And can I just come back? I wanted to -- one more technical, if I could. On just on your reserves and resources, I'm asking all companies, what are you thinking about in terms of pricing as you get your mine plans in place and start thinking about your pit shells and so forth. What pricing assumptions are you looking at for year-end 2025 and 2026 sort of inflation in cost? Renaud Adams: The most important aspects are the reserve. And as we're relooking at Côté and so forth. We're very comfortable to remain at the 1,700 or so for reserve at Côté, and we're going to -- we'll look at as well what the industry is aligning and so forth. So there is no real rush there. Essakane is a longer short-term life of mine. So there's an ability here to increase a bit and maximize cash flow down there. But typically, for our main asset like Côté, we're not seeing more than 1,700 at this stage for the year-end exercise. And we're also testing the long-term resource deposit like the Nelligan and so forth. We'll be testing it probably up to 2,500 as a resource exercise. But we'll be disciplined. We're not intended to use the full gold price in the short term and like to see how the industry -- eventually, of course, we're going to pick the price for the Côté study and so forth, but it is not our intention to transform our asset in low grade using the gold price. Tanya Jakusconek: Okay. And if I can ask a financial question. I just -- I saw your debt target, your net debt to EBITDA down to 0.74. And I think I heard that we still have another $250 million in 2026 that we want to reduce our debt by. So I'm just wondering, one, is that correct? I should think about another $250 million for 2026. Do we have a net debt-to-EBITDA target you're comfortable with so that I can -- and a minimum cash balance on the balance sheet, so I can then sort of look at my share buyback. Marthinus Theunissen: So that is correct. We $250 million drawn on the credit facility, and we would like to pay that down in 2025 or 2026. But we also have $130 million left on our second lien that we plan to do this year. So that then leads us to next year. We think $200 million to $250 million is a good minimum cash balance for our company. Over time, as I mentioned earlier, we will probably build that up as 1/3 of the capital allocation would go to that. But that's kind of the main benchmark is $200 million to $250 million minimum cash and then pay down that $250 million. So from a net debt-to-EBITDA ratio, that would bring us down to 0.5 or maybe even less. We are comfortable with 1 and lower, but we also understand it's a very high gold price environment. So we don't put all of our targets for net debt-to-EBITDA using a high gold price. So we're kind of looking at it what would it be at lower gold prices as well. So we don't want it to be much higher than in a lower gold price environment. Tanya Jakusconek: Okay. That's great. And if I could squeeze in an exploration question. I would really like to talk a little bit about the Nelligan camp. And maybe, Renaud, I'm keen to -- you said there are synergies of that entire camp. It's never going to be called the Nelligan camp once this is done. Can you talk about like is it going to be -- are you envisioning like one central mill to sort of treat all of these ores? Like how are you envisioning this? Renaud Adams: Well, the -- I have the pleasure to be leading the Rosebel Gold Mines at the very early days of IAMGOLD following the takeover of Cambior. And at the very early days when I rejoined this company, and I was looking at this camp, there was like a kind of an obvious type of look alike, if you will. And I'm sure you're very familiar as well with the Rosebel concept back in time where we started with 2 and eventually had 6 mining areas and so forth. I like that one even further because of the high-grade underground component as well that comes at play. So the kind of the close is for us, and we've operated this place for many years. So we have a pretty good understanding and mining experience. But think of it as a bit of a kind of a Rosebel concept back in time, definitely a center processing facility kind of gravity center and fed and hopefully, multiple mining sources that eventually comes and go as you advance in time. So that's the closest example I could take -- I could think of. Tanya Jakusconek: And one tailings facility or should I think of that as well? Renaud Adams: Sorry. Yes, definitely. Yes. One tailing. But again, with the new concept and minimizing footprint and the importance of protecting and minimizing environmental footprint, I could see over time, a kind of a use as well of depleted pit to be incorporated in the scenario of how you minimize for tailings purpose. So early stage, but this is our concept here. So the priority will be Philibert, Nelligan, and Monster Lake and eventually, hopefully, as we continue to drill, maybe incorporating more areas. Tanya Jakusconek: Look forward to hearing more about it next year. [ id="-1" name="Operator" /> [Operator Instructions] Our next question will come from Anita Soni with CIBC World Markets. Anita Soni: Similar position to Tanya with a number of competing conference calls. So I apologize if I missed anything. But I just want to follow up on Tanya's questions around costs going into next year. I guess I was just trying to understand if as we look at Cote and sort of push towards higher tonnage sort of things that you're thinking about what are the inflationary factors that you're facing on the mining cost front? And where do you see some offsets in terms of maybe pushing higher tonnes? Renaud Adams: You were breaking up a bit Anita. Maybe on the mining -- well, if we got your questions on the inflationary aspects on the cost and so forth, yes, we did see some pressure, but it's more around -- we don't see necessarily like on the pressure on the procurement side. And Maarten, you can add to this. I think it's really around the productivity and creating -- moving more towards bulk mining, as Bruno said, as we open the pit even further and creating more phases and minimizing the movement of equipment during blast. This is all productivity. This is all like same equipment, more movement, less rehandling and the tire and improving on drilling blasting. This is like the most important aspect of '26. that would probably get us to a significant improvement. There's no reason for Côté to lag its peers when it comes to the best mining we could do. But we've been very restricted, we haven't allowed the group to really mine within the perfect setting and force a lot of rehandling and so forth. So we need to be patient here and give a chance to the winner here to run the race. Bruno? Bruno Lemelin: Just to give you an example at the mill maintenance, we've done like numerous operation to try to find the right liners for secondary cone crusher like more than one, I guess. So 5 different type of liners were tested out. And now we are very glad to see that we have one that is performing very well that's going to double the lifetime of the liner. So we expect improved productivity, improved production, and lower cost on the tonne basis. But when you start an operation like the size Côté you need to do some predictors, you need to have an interactive process on some areas to find the best part that will trigger your top line. And that's what we do. It takes sometime, but we know where we have to work on. Anita Soni: Okay. I know these operations take some time to ramp and you've done a good job. Renaud Adams: Yes, exactly. And you mentioned more than once. And this is the thing maybe we sound like not direct to the question, but the reality being is from the commissioning, the building of the '23 to the full commissioning in '24 and you're looking at this year, our first year was to really eliminated any red flag remaining and so forth. 90% recovery at the mill, perfect reconciliation, mining at the mining grade, proven our concept of minimizing on segregation and make it more like work. And as you could see 3 quarters in a row where you've actually been capable to uplift at the mill. So those are all like significant milestones for us at the very early days. To say that we enter '26 and that what we want is an average for 4 years of the 36 with a full focus on the cost and you turn back and you look at what this group has achieved to date and now the mission is on the cost, and we're going to have the same focus and the same discipline and attacking this. I have all reason to believe that we're going to do like great, great, great improvement on this and that would be the first time really where we're going to be focusing on. So from -- it's kind of the next logical step for us after focusing this year on throughput and free cash flow and ounces and so forth. So I have all reason to believe, Anita, that you're going to see great things coming out of Côté as we make it our priority next year. Anita Soni: Yes. So for most of the operations that are doing well, year 3 is definitely the optimization year and that's year 2026. Renaud Adams: Absolutely. Anita Soni: So can I just ask just one more question in terms of grades. The mill plant feed has been above the mine grade, right? You had created something is in stockpile previously. But now the mining the grades are sort of in the 0.9 level this quarter. What should we be expecting like what the grade profile looks like going into next year? Is it going to be more along reserve grade? Or will you still have a couple of quarters of mill feed… Renaud Adams: I'll pass it to Bruno. Bruno Lemelin: Anita, this is Bruno. We have already like good inventory of high grade at the end of Q3. But the question is if we mine at 0.96, how long are we going to be able to mill at a grade above that. So we are currently looking at our 2026 budget and intent is still to mine higher proportion of ore that would have grade above the average grade. So the goal for Côté is definitely to be averaging mining at average grade, but the first three years is going to be a little bit above that. So we are talking about 1.1, 1.2, which will give us like a good path forward 400,000 gold ounce per annum. And while we are increasing capacity at the mill the grade will be reduced, but still protecting that 4, 4.50 level. Renaud Adams: Yes, if I may just add something to it. It has a lot to do as well with the volume you mine, correct? So if you look at this year how do you move from 0.96 mine to uplifting above 1.1 at the mill has a lot to do with, not super segregation, at least remove the lower grade glass from your inventory and just talk about the long term. So that practice could continue a little bit down the road. So I am confident by mining the reserve we will be capable to continue to uplift along the line of what we're seeing here. [ id="-1" name="Operator" /> The next question will come from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Apologies, I missed the start of the conference call due to conflict there. But on the grade front, but not at Côté, but maybe at Westwood, given the challenging ground conditions, I think you've seen improvement in October in terms of the underground grade there. How should we think about Q4 and maybe next year 2026 as we think about the Westwood grades and the mining rate there? Renaud Adams: Go ahead, Bruno. Bruno Lemelin: Mohamed, so the plan or if I can explain Westwood on the east side as areas with less challenging ground conditions, but with lower grade. On the central zone and western zone it has the ability to give better grades but with more challenging ground condition. So what -- when we started facing those challenging ground conditions, we just shifted our strategy and resequence the production mine tonnes toward the east. So that's the reason why you see the lower grade since the beginning of this year. Since then, we have readjusted the way that we do our blasting pattern, drilling patterns, stope design, stope parameters to take into account these ground conditions. I'm very pleased to say that we have been very successful in October in those zone and the average grade that we collected was above mine grams per tonne. And right now, what we have is we have an inventory of almost 1.5 months in front of us that are accessible. So I think the algorithm that we have developed over the past few years is working fine, but we just need to refine it further at the stope level so we can safely and profitably each so that we have in the sequence. So we just had to make some readjustment. So for the Q4, we expect a very strong Q4. And for 2026, it's going to be a balancing act between how much stope we're going to be scheduling in the east side and the central zone. So it's a risk adjusted type of plan. And again, Westwood is a mine that needs to deliver 10,000 gold ounce a month to be on [ XO ]. So very, very confident about the rest of the year and 2026 bodes very well. Renaud Adams: If I may just add to this, and thank you, Bruno, for this. To be very frank, like the mine like we did extremely well in '24, rehabilitated all the zone. There is maybe some aspect of it that maybe we try to run a little bit before walking. But the plan is I really have all the confidence that it's pure engineering, and we're already seeing quite a bit of turnaround and back on our feet. But the way we look at the mine is like we'll be absolutely happy, as Bruno says, an average of $10,000 a month, a mine capable to operate sub-2,000, bringing like significant free cash flow and longevity. So that's how we think of this mine for the next 2, 3 years. The future could be very exciting, depending on what happens in uncovering all the resources to the east and so forth. So more to come on that one. But for the time being, when I look at the next 2, 3 years, we'll be absolutely happy with the mine predictable capable to deliver if it's 10,000 a month, sub 2,000. With that, we'll be very happy and it would do very well for us. Mohamed Sidibe: That's very helpful. And if I could maybe shift to Essakane. I think you noted -- again, maybe you already commented on this, but you noted that you had in August a fuel shortage in the country. As you're looking at your operations now, we've heard kind of neighboring countries having issues and know that some of the Ivory Coast energy being provided to Burkina may have had some challenges there as well. But are you seeing any impact from fuel pressures at operation at Essakane currently? Or what is the latest that you can provide us on that front? Bruno Lemelin: So Mohamed, we are not using the same route as Mali does. So we have a very specific supply routes for fuel. So that's one. The second thing is that we have more than 48 days of inventory at site. So it gives us enough time to rearrange our logistics should we have like some hiccups. We have enough to maintain the operations uninterrupted. So it requires good logistic efforts, and we have continuous support from the government, allowing us to bring the fuels at sites at the appropriate time. But the main strategy was to make sure that we have enough fuel depo at Essakane so we can withstand a long period of time without supplies arriving to Essakane. So in a sense, we're not using the same roads. We don't see the same type of pressures as Mali and so far the other strategy that we have is increased inventory at site. Mohamed Sidibe: Great to hear. And a final question maybe on the complex and great consolidation of the complex there. What should we look at in terms of next key steps for this complex? I know that you're advancing an exploration campaign there with potential resource update in early 2026. But how could we look at this beyond what are the next key steps for the zone? Renaud Adams: So just quickly on it. So expect us like focusing on resource growth in '26, the incorporations of Philibert. So we need to answer one question that is really key. How big could that Philibert be and how does it fit in the mine plan, right? So this is the very, very key focus of '26, increased drilling program. We'll be aggressive but smart about proven record from the team. I'm not concerned at all there. And I think we will do a very good use of money deployed there. But that's the very short term. And as I mentioned, we were hoping of maybe putting some sort of a study in '26, but I think it's worthwhile like getting great answers from. Objective with almost 12 million already. So we could only shoot for the 15 million, 20 million camp. And this is what we're going to be doing. We're going to drill, drill, drill and hopefully having a very good update resource update late '26. Having said that, Nelligan and Monster Lake will be somewhat updated at year-end with the drilling of '25 in it. But look at it as resource grows in the next year or 2, and then we'll start putting study out there. And anything we could advance and start putting in place, we'll do it. But we have a high, high level of confidence that this is going to be a mining camp. Bruno, if you want to add anything to this? [ id="-1" name="Operator" /> This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Graeme Jennings for any closing remarks. Please go ahead. Graeme Jennings: Thank you very much, operator, and as always thank you, everyone, for joining. If you have any questions please reach out to Bruno or myself. Thank you all. Be safe. Have a great day. [ id="-1" name="Operator" /> This brings to a close today's conference call. You may disconnect your lines. Thank you for your participation, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Revolution Medicines Q3 2025 Earnings 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 first speaker today, Ryan Asay, Senior Vice President of Corporate Affairs. Please go ahead. Ryan Asay: Thank you, and welcome to our third quarter 2025 earnings call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicine's Chairman and Chief Executive Officer; Dr. Wei Lin, our Chief Medical Officer; and Jack Anders, our Chief Financial Officer; Dr. Steve Kelsey, our President of Research and Development; Dr. Alan Sandler, our Chief Development Officer; and Anthony Mancini, our Chief Global Commercialization Officer, will join us for the Q&A portion of today's call. I'd like to inform you that certain statements we make during this call will be forward-looking because such statements deal with future events and are subject to many risks and uncertainties. Actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. This afternoon, we released financial results for the quarter ended September 30, 2025, and recent corporate updates. The press release and updated corporate presentation are available on the Investors section of our website at revmed.com. With that, I'll turn the call over to Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer. Mark? Mark Goldsmith: Thanks, Ryan, and good afternoon. At Revolution Medicines, we are tireless in our commitment to revolutionizing treatment for patients with RAS-addicted cancers through the discovery, development and delivery of innovative targeted medicines. With robust operational capabilities, financial strength and 3 compelling clinical stage RAS(ON) inhibitors, we are building the leading global RAS-targeted medicines franchise that we believe has the potential to transform treatment for patients living with pancreatic, lung and colorectal cancers. In the quarter, we continued to make substantial progress as we scale the organization and advance our pipeline to fulfill our global development and commercialization ambitions. Today, we'll begin by highlighting recent progress across our pipeline, beginning with daraxonrasib in pancreatic cancer. I'd like to note that daraxonrasib has received 3 special designations from the FDA, recognizing its potential role in treating patients with pancreatic cancer, an aggressive disease that is nearly always caused by a RAS mutation. Previously, daraxonrasib was awarded breakthrough therapy status and recently, it received both Orphan Drug Designation and an Commissioner’s National Priority Voucher for accelerating review of a new drug application. These highlight the significant unmet medical needs in pancreatic cancer and the potential of this investigational drug to transform treatment for patients living with this devastating disease. I'd like to invite Dr. Wei Lin to walk through our most recent clinical updates in pancreatic cancer. Wei? Wei Lin: Thanks, Mark. daraxonrasib is our RAS(ON) multi-selective inhibitor with a promising clinical profile in multiple indications, including pancreatic cancer. In September, we presented long-term follow-up data from the Phase I daraxonrasib monotherapy cohort of patients with second-line metastatic pancreatic cancer. These results reinforce our understanding of the strong clinical antitumor activity and durability. The acceptable safety and tolerability profile remained consistent with earlier findings with no new safety signals observed. Slide 10 shows that with longer follow-up, durability outcomes remained encouraging. The estimated median progression-free survival for patients with both the RAS G12X and all RAS mutant groups exceeded 8 months. The estimated median overall survival was 13.1 months and 15.6 months for patients in the G12X and RAS mutant groups, respectively, with a lower bound of 95% confidence interval at approximately 11 months. These results are particularly compelling, especially in the context of standard of care cytotoxic chemotherapy regimens that were reported in randomized controlled trials to provide a median overall survival of 6 to 7 months in the second line and approximately 11 months in the first-line setting. RASolute 302, our Phase III registrational trial in patients with second-line metastatic PDAC is winding down enrollment globally as we near completion of enrollment across all U.S. and international sites. We remain on track for an expected data readout in 2026. In September, we also shared encouraging initial results for daraxonrasib in first-line metastatic pancreatic cancer, both as monotherapy and in combination with standard of care chemotherapy. As shown in Slide 11, daraxonrasib monotherapy induced tumor regressions in most patients with an objective response rate of 47% and disease control rate of 89%. The majority of patients remained on study treatment as of the data cutoff. While the data were not sufficiently mature to estimate the median progression-free survival or overall survival, we continue to follow these patients to assess the durability of clinical benefit. The acceptable safety profile of daraxonrasib monotherapy in the first-line metastatic setting was generally consistent with what has been reported in patients with second-line metastatic disease. On Slide 12, the combination of daraxonrasib plus gemcitabine nab-paclitaxel or GnP chemotherapy also delivered significant antitumor activity represented by deep and sustained tumor regressions with an objective response rate of 55% and disease control rate of 90%. Most patients remained on treatment as of the data cutoff. Again, longer follow-up is required to estimate median progression-free survival and overall survival. As with monotherapy, the combination regimen showed an acceptable safety profile. The rates of treatment-related adverse events were additive of the individual agents. No new safety signals were observed. We expect to share updated data from patients treated with daraxonrasib with or without GnP in first-line PDAC, including preliminary durability in the first half of 2026. Building on the encouraging early phase data in the first-line and second-line settings, we are advancing RASolute 303, a randomized 3-arm Phase III trial in patients with first-line metastatic PDAC as shown on Slide 13. This registrational trial will compare daraxonrasib monotherapy or daraxonrasib plus GnP followed by daraxonrasib monotherapy to a comparator arm of GnP alone. The design of this 3-arm study provides 2 distinct opportunities to demonstrate potential survival benefit for patients. Treatment with daraxonrasib as monotherapy in first line, followed eventually by chemotherapy in second line or alternatively treating concurrently with both daraxonrasib and chemotherapy in first line. Both strategies have scientific and clinical merit and deserve to be evaluated. We remain on track to initiate RASolute 303 this year. I'd like to provide an overview of the current standard of care in the setting of resectable PDAC. While surgery along with perioperative cytotoxic chemotherapy offers patients the possibility of a cure, the relapse rate is high at approximately 80%. The current standard of care for perioperative treatment is cytotoxic chemotherapy, either modified FOLFIRINOX or gemcitabine and capecitabine. The publicly reported disease-free survival rate on these chemotherapy regimens ranges from 13.9 months to 21.6 months. Our 3-year disease-free survival ranges from approximately 20% to 40%. We believe there remains significant room for improvement that may be served with RAS-targeted therapy. The strength of the daraxonrasib monotherapy data so far in both first- and second-line metastatic disease provides a compelling rationale for advancing daraxonrasib into the adjuvant setting. And Slide 15 shows our Phase III trial design for RASolute 304 in perioperative therapy. We plan to evaluate approximately 500 patients after surgical resection and 4 months or more of perioperative therapy with the local standard of care, either FOLFIRINOX or gemcitabine, capecitabine administered before and/or after surgery. Patients will be randomized to either observation or daraxonrasib monotherapy 300 milligrams daily for 2 years. The primary endpoint will be disease-free survival with secondary endpoints of overall survival and safety. We have initiated this trial and site activation is currently underway. I'll also touch briefly on zoldonrasib, our covalent RAS(ON) G12D-selective inhibitor in pancreatic cancer. zoldonrasib has demonstrated compelling clinical profile with encouraging antitumor activity and a particularly favorable safety tolerability profile. With this differentiated profile, we believe zoldonrasib has high potential to contribute as a key component of a combination therapy in first-line PDAC with current standard of care chemotherapy and/or with daraxonrasib as a RAS(ON) inhibitor doublet. The potential for this doublet was featured at last month's triple meeting, where new preclinical data demonstrated that the combination of zoldonrasib with daraxonrasib can maximally inhibit RAS G12D and improve both the depth and durability of response. We expect to initiate our first zoldonrasib combination registrational trial in first-line metastatic PDAC in the first half of 2026. We look forward to share the 12D details and additional supporting data around that time frame. I'll now return the call to our CEO, Mark. Mark Goldsmith: Thank you, Wei. Following closely behind pancreatic cancer, our non-small cell lung cancer clinical program remains an area of strategic priority, and we are progressing well in our efforts. Focusing first on daraxonrasib, the RASolve 301 registrational trial studying daraxonrasib versus docetaxel in previously treated patients with RAS-mutant non-small cell lung cancer continues to enroll patients across sites in the U.S. and is now also enrolling in Europe and Japan. We also continue advancing plans to initiate a registrational trial in the first-line metastatic setting in 2026 evaluating daraxonrasib in combination with pembrolizumab and chemotherapy, and we expect to disclose study details around the time of initiation. As a reminder, this plan was based on the encouraging initial data we presented in May showing the combination of daraxonrasib with pembrolizumab with or without chemotherapy was well tolerated and demonstrated encouraging early antitumor activity. In the G12C non-small cell lung cancer space, we continue to make progress with elironrasib, our RAS(ON) G12C inhibitor. Last month, at the Triple Meeting, we presented encouraging monotherapy data in heavily pretreated patients with G12C non-small cell lung cancer who had received a median of 3 prior lines of therapy, including treatment with a G12C(OFF) inhibitor. As shown on Slide 22, elironrasib demonstrated a confirmed objective response rate of 42%, a disease control rate of 79% and a median duration of response of 11.2 months. On Slide 23, the median progression-free survival was 6.2 months in these heavily pretreated patients. While the median overall survival had not yet been reached, 62% of patients were alive at 12 months. We are encouraged by the strength of these data in late-line KRAS G12C(OFF) inhibitor experienced patients and continue to expand enrollment in this and other elironrasib monotherapy and combination studies while exploring a number of options for continued development of this differentiated RAS(ON) G12C selective inhibitor. Regarding zoldonrasib in lung cancer, we are evaluating a Phase I monotherapy expansion cohort of patients with previously treated non-small cell lung cancer as well as exploring combination regimens, including zoldonrasib with pembrolizumab and zoldonrasib with daraxonrasib. In addition to plans mentioned earlier to initiate a registrational trial for a zoldonrasib combination in patients with first-line metastatic pancreatic cancer in the first half of 2026, we expect to initiate one or more additional pivotal combination trials in 2026 that incorporate either zoldonrasib or elironrasib. We also continue to advance RMC-5127, an oral tri-complex RAS(ON) G12V-selective inhibitor. As a reminder, approximately 48,000 patients are diagnosed with the KRAS G12V mutant cancer in the U.S. each year, including non-small cell lung cancer and gastrointestinal cancers, such as pancreatic and colorectal. RMC-5127 has been shown to induce deep and durable regressions in preclinical models, and it has been advancing toward clinical development. We are on track to initiate the planned first-in-human trial in Q1 2026. Based on the progress we've made across our 3 clinical stage assets, we are confident in the potential of our RAS(ON) inhibitor portfolio to change the standards of care across pancreatic, lung and colorectal cancers. We also have several discovery and clinical collaborations designed to expand the range of treatment strategies we can bring to bear for patients with RAS-addicted cancers. These collaborations enable us to explore diverse combinations of our RAS(ON) inhibitors with inhibitors of novel disease targets, including vopimetostat, a PRMT5 inhibitor under our agreement with Tango Therapeutics and ivonescimab, a bispecific PD-1/VEGF inhibitor, under an agreement with Summit Therapeutics. With our rich promising clinical and preclinical pipeline, we continue making investments to scale our organization to meet the extraordinary range of opportunities it affords. In support of this work, we've made new key appointments across late-stage functions. In our R&D organization, we announced that Dr. Alan Sandler joined RevMed as our new Chief Development Officer. As an accomplished leader in oncology with a strong track record in cancer drug development, Alan brings valuable insights and expertise to our organization. We likewise expanded and strengthened our global and regional commercialization capabilities with additional appointments across our commercialization functions, including 2 key regional leaders. Alicia Gardner was appointed Senior Vice President and General Manager of the U.S. region, and Gerwin Winter recently joined RevMed as Senior Vice President and General Manager of the European region. I'd now like to turn the call over to Jack Anders to summarize our third quarter financial results. Jack Anders: Thanks, Mark. We ended the third quarter of 2025 with $1.93 billion in cash and investments. This balance includes the receipt of the first royalty monetization tranche of $250 million in June 2025 from our partnership with Royalty Pharma, and there remains an additional $1.75 billion in future committed capital under this arrangement. Turning to expenses. R&D expenses for the third quarter of 2025 were $262.5 million compared to $151.8 million for the third quarter of 2024. The increase in R&D expenses was primarily due to increases in clinical trial-related expenses and manufacturing expenses for our 3 clinical stage programs, with daraxonrasib being the largest driver of the increase given the ongoing Phase III trials. Personnel-related expenses and stock-based compensation expense also increased in 2025 due to additional headcount. G&A expenses for the third quarter of 2025 were $52.8 million compared to $24.0 million for the third quarter of 2024. The increase in G&A expenses was primarily due to increases in personnel-related expenses and stock-based compensation expense associated with additional headcount, increased commercial preparation activities and increased legal expenses. Net loss for the third quarter of 2025 was $305.2 million compared to $156.3 million for the third quarter of 2024. The increase in net loss was primarily driven by higher operating expenses. We are reiterating our 2025 financial guidance and expect projected full year 2025 GAAP net loss to be between $1.03 billion and $1.09 billion, which includes estimated noncash stock-based compensation expense between $115 million and $130 million. That concludes the financial update. I will now turn the call back over to Mark. Mark Goldsmith: Thank you, Jack. We are highly encouraged by continuing momentum as we seek to build the leading global targeted medicines franchise for patients living with RAS-addicted cancers. We believe our strong financial position, expansive development plans for our compelling pipeline assets and global commercialization ambitions will allow us to establish new global standards of care. We've made great progress across our pancreatic and lung cancer clinical programs and continue to generate encouraging data that informs our plans in colorectal cancer. Underpinning the passion and drive at RevMed is our collective commitment to patients. November is recognized globally as both Pancreatic Cancer Awareness Month and Lung Cancer Awareness Month, which align with 2 highly visible cornerstones of the clinical development efforts by our organization. We have expanded our partnerships with the advocacy community to better understand the dynamics that affect the patient's experience with RAS-driven cancers. Insights from these engagements will continue supporting our development of patient-friendly clinical protocols, access solutions and educational initiatives. We hope you will join us in supporting the high-impact work by advocacy organizations as they seek to improve outcomes for patients through educational resources, support and research. Before closing, I'd like to acknowledge the continued support of our patients and caregivers, clinical investigators, scientific and business collaborators, advisers, shareholders and importantly, the remarkable team of revolutionaries who drive exciting steps forward on behalf of patients. This concludes our prepared remarks, and I'll now turn the call over to the operator for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Jonathan Chang of Leerink Partners. Jonathan Chang: How are you thinking about the impact of receiving the Commissioner's National Priority Voucher on daraxonrasib time lines and your plans? Mark Goldsmith: Jonathan, thanks for your question. Well, obviously, we're very proud to have receive one of the first 9 vouchers. Actually, it's the only oncology product that's featured in that particular set. The stated goal of that voucher program, the pilot program is to accelerate the review time lines by some significant amount and potentially making the review time line as short as 1 to 2 months, and we'll do everything we can to support that. But we've been aggressively preparing for the data readout and then an expected submission of an NDA and to be ready at the earliest possible time for launching a product. I don't think at this point in time, we anticipate that we would have any difficulty meeting whatever time line might be delivered under the CMDB process. Operator: Our next question comes from the line of Charles Zhu of LifeSci Capital. Yue-Wen Zhu: Congrats on the progress. I've got a couple regarding RASolute 304, the adjuvant daraxonrasib trial. This might be a little naive, but can you help us understand and perhaps educate us on the decision to randomize against observation in the post perioperative chemotherapy setting? And is there, I guess, clinical value in maybe at some point, evaluating whether or not one could displace chemotherapy in this particular disease setting as well. Can you also talk about -- help us understand and talk about the requirement for at least 4 months of perioperative chemotherapy as an eligibility criteria prior to randomizing against the 2 arms? Mark Goldsmith: Thanks a lot, Charles, for your question. I think Dr. Sandler would be happy to comment on the rest of the RASolute 304 trial. Alan Bart Sandler: Great. Yes. Thanks. It sounds like it was a 3-part question, and hopefully, I'll remember all 3 parts. So the aspect of the -- I'll start with the 4 months of therapy, that's considered to be the standard of care that's been established previously. And so we wanted to add to that. So we're requiring that patients receive standard of care therapy for that, and that's at least 4 months of therapy. So that's number one. Then the idea is to randomize patients to no further treatment or 2 years of additional adjuvant therapy with daraxonrasib. And the idea then is to build upon the success that has been seen. It's modest, but success that has been seen with chemotherapy in this setting. And so this, I think, offers the best approach to patients with resectable pancreatic cancer. Your last question, I think, was to potentially replace chemotherapy. And I think based on what we see from the adjuvant study, we'll reassess a plan accordingly. But I think we've -- we're very excited about this particular opportunity already and are looking forward to initiating the trial. Yue-Wen Zhu: Congrats on all the progress. Operator: Our next question comes from the line of Michael Schmidt of Guggenheim. Michael Schmidt: And congrats on all the progress. A couple of questions on PDAC. So as we think about RASolute 302, how would you expect results from the Phase II study to translate to the large global Phase III study? Are there any anticipated differences, for example, in patient characteristics when you go from a smaller Phase II to a large global study? And secondly, I guess, in anticipation of positive data next year, how are you tracking towards commercial readiness in terms of CMC manufacturing capacity and then ramping up commercial infrastructure? Mark Goldsmith: Thanks, Michael. Appreciate the questions. Maybe Dr. Lin can first comment on the Phase III versus Phase I/II question. Wei Lin: Yes, happy to do that. Thanks a lot for the question. So it's certainly an important question that we thought very deeply before initiating Phase III. So we looked extensively at the patients who enrolled in the Phase I cohort compared to the Phase III randomized studies that we reported historically. I think our patient populations are actually fairly similar in looking at all the baseline characteristics that are prognostic or predictive of response to either chemotherapy or our own therapy. There's a -- almost all the metrics are either comparable or in some measures, the historical Phase IIIs were actually a little worse. So I think we do have a patient population in the Phase I setting that's fairly representative of what we expect to enroll on the Phase III. And furthermore, the RASolute 302 study, while it's a global study, the predominant enrollment will occur in the U.S. with representative enrollment in Europe and in Japan. And therefore, another reason why we feel that the population on the Phase I will translate to the Phase III. So -- and then finally, look at historically, the trial after trial, there's a degree of consistency over a period of a decade or 2 of all the Phase III trial delivering very, very similar performances with the chemotherapy. Again, I think we expect the performance certainly on the control arm will perform historically similar. So all these give us a large measure of reassurance that we can replicate to a large measure because the patient population as well as the performance of the treatment historically are pretty representative. Mark Goldsmith: And then the question regarding commercial readiness, maybe I'll answer -- comment on part of it and then Anthony Mancini can comment on the other part. With regard to manufacturing, we have a very strong organization and supply chain that's really been prepared over the last number of years. We're already scaling at the proper level to be able to support whatever level of uptake there might be should we be able to launch a product. So I think we're in a very strong position there and don't anticipate anything that could pose a significant problem for us. With regard to commercialization readiness beyond that, maybe Anthony can comment. Anthony Mancini: Yes. Thanks, Mark, and thanks, Michael, for the question. We're really pleased with how our launch readiness plans are advancing. We've as was outlined earlier, we now have experienced and talented executives leading our commercialization team, including now building into the region, so across multiple functions, including medical affairs, market access, marketing and sales. And we're deeply engaged in market-shaping activities and planning and KOL and advocacy organization engagement and building broader organizational capabilities around launch readiness. We continue to add highly experienced and talented team members as we advance our organizational launch readiness, including U.S. field-based teams, and we're making great progress there. And we're confident in our ability to continue to attract the right talent with the right experience and capabilities, which is a key success factor for a successful launch, and we're confident that we can do that. Operator: Our next question comes from the line of Andrea Newkirk of Goldman Sachs. Morgan Lamberti: This is Morgan on for Andrea. Based on the initial frontline metastatic PDAC data, how do you think about the efficacy of combination treatment relative to monotherapy, whether greater time on treatment could increase the delta on ORR and DCR? And then with regard to updated daraxonrasib monotherapy and combination data in the first half of next year in frontline metastatic PDAC, how should we be thinking about durability? Mark Goldsmith: Thanks for the question, Morgan. We would you like to comment on those? The first question being the difference -- what level of difference is there between monotherapy versus combination? And will that clarify over time? Wei Lin: Yes. So the monotherapy versus combination in frontline, I think as we discussed previously, really test 2 very distinct hypotheses. I think one is really the sequential treatment by introducing additional line of therapy because currently standard of care, only 2 lines of therapy are exist for patients, a gem-based and a 5FU based. And by using daraxonrasib monotherapy, we introduced the third line of therapy. And could that introduction of third-line therapy with very promising data in the second-line setting translate to prolongation of overall survival. And then the other chemo combination arm really test very distinct hypothesis, which is a potential synergy by combining the 2. Those patients still get 2 lines of therapy, but then the first-line therapy is actually a combination regimen of [indiscernible] standard of care chemotherapy potentially extending the progression survival and can also translate to longer overall survival. So I think these hopefully will translate into surviving benefit as well as different options for patients who can tolerate a more potent regimen versus who are seeking better quality of life and that provides by monotherapy. Mark Goldsmith: And just to add that, of course, there's really no way to answer the question about how those 2 regimens compare except to test them both. And they're both very credible on the meritorious scientific hypothesis. The second question, I think, had to do with what sort of update can be expected next year with regard to the durability of the effects that we have already reported. We will -- we do intend to provide an update in the first half of 2026. Operator: Our next question comes from the line of Brian Cheng of JPMorgan. Lut Ming Cheng: Just first on your Voucher. What additional pieces of information have you learned on the use of it since you received it mid-October? Specifically, do we know which line of setting the Voucher is for since the language on the press release seems to be more broadly applicable to PDAC. And then we have a follow-up. Mark Goldsmith: Yes. Thanks for your question, Brian. We don't really have any additional information to share with you today. We are certainly in ongoing dialogue with the FDA and learning more about how this voucher system will work and what impact it might have on how we approach preparing an NDA, but no other comments available today. Lut Ming Cheng: Okay. And then just quickly on zoldon's combo Phase III in frontline PDAC. Now that you have 303 on track to start later this year, I'm just curious if you can talk a little bit about just some consideration that you currently have when it comes to the selection of the doublet versus triplet. And I think also the active comparator piece. How should we think about which active comparator arm you should put in to make it -- make sure that physicians understand how they look at zoldon combo in the future? Mark Goldsmith: Yes, that's a great question, and it perfectly tees up when we present some information about that, we'll be able to address all of those questions. But I assure you we will comment on all of that. Maybe the big picture right now is just that we are taking multiple approaches to treating this devastating disease. And we're in the second or third inning of this battle, and we're going to keep investing in it until we've really moved the needle as much as we possibly can. So we're excited to bring that approach forward, and we'll give you more color about it when we are able to lay that out much more explicitly. Operator: Our next question comes from the line of Marc Frahm from of TD Cowen. Marc Frahm: On all the progress. Maybe just start on that zoldonrasib first-line trial. Just the idea of only pursuing combinations, I guess, should we read into that the monotherapy maybe doesn't seem as durable as daraxonrasib as a monotherapy since you were interested in pushing forward the monotherapy in first line in that setting? And then I'll likely have a follow-up. Mark Goldsmith: Thanks, Marc. I'm not sure about that last comment. I'm not sure that we ever gave any inclination with regard to zoldonrasib in first line and what sort of strategies we might pursue. So I don't think we need to explain something that I don't think we ever committed to. daraxonrasib alone, we're studying in first line as monotherapy. We're going to learn a lot from that study. And zoldonrasib is an ideal combination agent because of its pretty remarkable safety and tolerability profile. So it is a real opportunity to see how far we can push things. And in terms of further differentiating options for patients, we will certainly continue to be committed to that. So I don't think you should infer anything from that decision and that strategy other than we're looking for the best possible ways to deliver impact for patients that would complement the other options that are coming out of our portfolio. Marc Frahm: Okay. That's helpful. And then on 302, now that you're getting pretty close to the end of enrollment, you can maybe speak to kind of how the event rate has been trending maybe relative to kind of how you guys were projecting it when you designed the trial? And then as the interim start to get taken, just what's the latest thoughts on disclosure strategy? Will you inform investors whenever an interim is taken, whatever the result of that was or likely only speak if the interim results in some sort of stoppage of the trial? Mark Goldsmith: Unfortunately, Mark, I think you're over for 2 of those questions, anything to comment on either of those at this time. Operator: Our next question comes from the line of Leonid Timashev of RBC. Leonid Timashev: Just wanted to ask on sort of the commercial opportunity. I mean, given that you recently hired President of EU strategy, just how you're thinking about the landscape in the European Union with respect to where patients lie in terms of the commercial opportunity, the concentration there, awareness and diagnostic opportunities. Just anything you can speak to how you think the European strategy might take shape. Mark Goldsmith: Thank you. Appreciate the question. It's a gigantic question. So I'm immediately going to ask Anthony to address that. Anthony Mancini: Look, it's -- there's been a lot of thought put into how we're thinking about bringing daraxonrasib to patients. Clearly, different from many companies' opportunities with a first launch in a first indication. We think the second-line pancreatic cancer indication is a meaningful one. So you can look at the -- in the key European markets, starting with Germany and the EU4 and beyond, and there are many patients to treat. We think that we'll bring a compelling value proposition in Europe, and we think it's going to be a meaningful opportunity in Europe, in the U.S. and Japan. And so we're pursuing that. I think there's nothing more to comment on except that those are our priority markets, and we intend to bring -- put our best foot. Operator: Our next question comes from the line of Clara Dong of Jefferies. Jenna Li: This is Jenna on for Clara. Could you talk about if there were any rationale behind starting the adjuvant study before the first-line study? Mark Goldsmith: Jenna, thanks for your question. That's pretty straightforward. There's nothing profound underneath it. It's a simpler study. Obviously, it's a single treatment arm, and we're just able to get that up and running a little bit earlier, but I don't think it will materially differ in terms of the overall conduct of it. Of course, that is going to be a longer study in terms of the readout given the time lines that we talked about. So it doesn't make much difference, and it just happened that we were able to proceed with it. Operator: Our next question comes from the line of Asthika Goonewardene of Truist Securities. Asthika Goonewardene: So you described what resistance mechanisms emerge with daraxonrasib in PDAC. And you should have a considerable amount of data with daraxonrasib in non-small cell lung cancer, too under hood. So I'm just wondering, do you expect non-small cell lung cancer to also follow a similar path of resistance as PDAC? Or are there any new resistance mechanisms that are emerging that you can tell us about? I'm wondering how this guided your choice of selecting pembro and chemo for the combination versus just a chemo-sparing pembro combo? And then I have a follow-up. Mark Goldsmith: Thanks for your question. That's sort of a subtle comment at the end of that question. Maybe Dr. Kelsey can discuss resistance, what we know about PDAC expectations across other tumor types and how has that affected our thinking for trials? Stephen Kelsey: The data that we have on emerging mechanisms of resistance to daraxonrasib in non-small cell lung cancer is probably not sufficiently mature for public disclosure at this stage. There are a number of confounding issues around that. The first is, as you know, we declared our recommended Phase II dose for non-small cell lung cancer after we had declared the recommended Phase II dose in pancreatic cancer. So the information that we have would only really be important at the recommended Phase II dose. The second is the number of people that actually have progressed and been documented to progress. And the third issue there are the number of patients with progression that actually have detectable circulating, ctDNA in order to make an assessment of whether there's anything to see. The other thing is that traditionally in non-small cell lung cancer, there appear to be -- from the literature that's available, a lot of resistance mechanisms that are possibly not even genomic. And so it's going to take a little bit more time to figure that out. And I think that all bets are off really mapping mechanisms of resistance in pancreatic cancer to mechanisms of resistance in non-small cell lung cancer. We already know that the biological resistance mechanisms in colorectal cancer, for instance, to G12C inhibitors are different from the biological resistance mechanisms to G12C inhibitors in non-small cell lung cancer. They are qualitatively similar and overlap, but they're not identical. And I don't think that we can infer anything at this stage. With regards to how that information informs how we move forward with combinations, it really has no bearing on it. The selection of pembrolizumab as a partner for any of our RAS(ON) inhibitors is driven really by 2 things. One is the almost ubiquitous inclusion of pembrolizumab or an equivalent checkpoint inhibitor into the standard of care for non-small cell lung cancer. And the second is the increasingly compelling body of evidence that suppressing RAS does actually make pembrolizumab more effective because it profoundly changes the immune microenvironment for the -- and allow the immune system much more access to the tumor for a whole load of reasons that we have published and a number of other groups have published. So when we have the data, we will disclose it, and it may influence how we move forward, and it may not. There are really 2 separate issues. Asthika Goonewardene: And then if I can just tag on to Charles' previous question. By requiring in the 304 study, by requiring patients to have 4 months of chemotherapy, does this help select out patients who are deemed to be borderline resectable? Alan Bart Sandler: Yes. I'll take that. No, the -- first, we'll talk about the purpose of it was, again, the 4 months of standard of care. The question about your border line and the readily resectable. What we've done is we've allowed those patients to undergo the standard treatment that they would locally and whether they're surgically resectable or not. And then the only way they're able to enter on study is if they are pathologically completely resected, either with totally clear or narrow margins, the R0 or R1 that was shown on the slide. And then those patients are then randomized to the treatment as such. In a sense, it eliminates those patients who are not able to be resected, but it also allows those patients with the borderline resectable an opportunity to receive adjuvant therapy if their perioperative therapy and surgery was successful. So it broadens the number of patients who have access to this therapy and the study. Mark Goldsmith: I'd also add one point about the question of why 4 months. There is a variety of different approaches that people take in treating that disease. They all center around using chemotherapy before, after or both before and after and by requiring a standardized duration of treatment, we can make the patient population more uniform and easier to compare the 2 groups to each other and avoid imbalances in their treatment regimen. Operator: Our next question comes from the line of Alec Stranahan of Bank of America. Alec Stranahan: And congrats on the update. Two from us. First on zoldonrasib. Curious how you're thinking about the opportunity for zoldon on top of chemo versus daraxonrasib plus chemo and RASolute 303. Do you plan to enroll similar patients in both studies or maybe try to subset the frontline opportunity? And secondly, how important is the RAS doublet in terms of your ideal commercial strategy longer term, specifically thinking about zoldonrasib to daraxonrasib in the frontline PDAC? Mark Goldsmith: Okay. Maybe I can just comment on the second one and then maybe Wei can comment -- can address your first question. So with regard to RAS(ON) inhibitor doublets, we still have high conviction about it. We just showed some data on zoldonrasib plus daraxonrasib in preclinical models just last month at the Triple Meeting. And we're -- we feel like it's a compelling option. Just stay tuned as we roll out the various studies that will be coming in the future and I think we have high interest in that. The first question, I think, had to do with zoldon versus daraxon each in a first-line population. And are we selecting patients differently between those? Obviously, one is all RAS mutations and the other is just KRAS G12D mutations. So there's that difference between them, but are there any other differences, Wei? Wei Lin: Clinically, the eligibility otherwise are no different. And I think in the Phase I setting, when we're doing the combination with the chemotherapy, it's really -- the eligibility are really mainly designed to make adequate organ function allow to deliver chemotherapy. So they're actually also very, very similar. Operator: Our next question comes from the line of Joe Catanzaro of Mizuho. Joseph Catanzaro: Just maybe one quick one from me. As it relates to CRC, just wondering if there are any sort of key data points you are looking towards before maybe committing to earlier line, later-stage trials and whether we should expect any of those data points in 2026? Mark Goldsmith: Thanks for your question. Thanks for joining us. Steve, do you want to comment on CRC? Stephen Kelsey: Yes, I'm happy to do that. I'm not going to comment on timing because we haven't really guided to data disclosure with regards to colorectal cancer. But I think we have previously made it pretty clear that due to the biological complexity of RAS mutant colorectal cancer, we believe that combination therapy is absolutely essential in order to maximize clinical benefit and the studies that are designed to figure out which combinations are most efficacious in that context are currently ongoing. And so as soon as we figure it out, then we can follow a path forward. We also don't forget that we have the -- there are several dimensions to this issue. I mean you mentioned one of them, which is line of therapy, whether or not we try and go into the first-line metastatic setting or whether we just tackle patients in the third and fourth line who are essentially being salvaged after chemotherapies failed. There are several different biologically rational combinations, including combinations with our own -- within our own portfolio of RAS(ON) doublets. And so we just need the opportunity to figure that out. It's a very complex -- colorectal cancer is a very complex disease. It's not entirely clear that RAS mutant -- RAS is the only driver, the only oncogenic driver even in situations where it's actually mutated. So we've got -- we're just going to sort it out. Operator: Our next question comes from the line of Sean McCutcheon of Raymond James. Unknown Analyst: This is Yang on for Sean. We have 2 quick ones. The first one regarding the first-line NSCLC with daraxonrasib. What kind of a threshold for efficacy by you looking at anticipating that you have the update for the frontline and also commenting on the daraxonrasib and elironrasib combination in the first-line NSCLC? Mark Goldsmith: Thanks for your questions. Let me make sure I understand. The first question had to do with an update on first-line PDAC with daraxonrasib... Unknown Analyst: No, no. Sorry. Yes, that's all non-small cell lung cancer, frontline daraxonrasib, what's the threshold efficacy bar you're looking at? Mark Goldsmith: Okay. So in lung cancer, since we indicated that we'll proceed with a trial, and we'll provide information later. Yes, I mean, obviously, we look at standards of care and what we see in a single-arm trial versus standards of care, even though they're not immediately comparable since it's not randomized data, but we'll look at standard of care and see if we can improve upon that. We typically wouldn't provide guidance as to what we consider an acceptable improvement. That's something that's a complicated topic, and that's between us and the statistical analysis plan and the FDA and so on. So no pre-guidance that we'll be able to offer you today on that. And your second question? Unknown Analyst: Yes. The second question is related to the combination potential with your pan-RAS and G12C elironrasib in first-line NSCLC. Mark Goldsmith: Okay. That's back to the RAS(ON) inhibitor doublet. And in this case, it's the doublet of elironrasib plus daraxonrasib. And that, too, is a very interesting combination. I think I'd just reiterate that we are -- we believe that the combination of a mutant selective inhibitor with the RAS multi-inhibitor provides potentially the benefits of both of those compounds as complementary and delivering the greatest impact. And we've now shown 2 clinical data sets to support that, one in colorectal cancer and one in lung cancer, both of which were directionally quite similar. As to how we prioritize that relative to other options, that's a very complex matrix of considerations and don't have anything to be able to guide you to specifically today about that. Operator: Our next question comes from the line of Laura Prendergast of Stifel. Laura Prendergast: Congrats on the quarter. I was just curious if it's possible any type of accelerated approval pathway could be there for first-line PDAC, whether that's an early cut for the Phase III study or something -- or anything else? Also, how are you factoring daraxonrasib being approved in second line into how you're thinking about the statistics for OS in the first-line study? Mark Goldsmith: Okay. Laura, thanks for your questions. Maybe I'll comment on the AA question and then maybe Wei can comment on daraxonrasib. No comment. That's basically -- that's always a question for the FDA. That's not so much of a question for us. And I think there's no doubt that the initial data that we showed were quite encouraging. And I'm sure they're viewed that way by many people, what the FDA -- how they view it in a formal sense and what they want to do with it would be the subject of future dialogue and so on. Really nothing that we can say about that. I would say, just generally speaking, we've had a pretty strong habit of focusing on full approval strategies, which I think has served us well with regard to a PDAC for sure so far. We're not at the end game yet, but it seems to have made sense. And we'll continue to prioritize that. There may be some situations in which an accelerated approval can make sense to get something to patients as early as possible and where we think it makes sense. And the FDA, more importantly, thinks it makes sense, then we could always welcome that opportunity. Wei Lin: Yes. Regarding the design and statistics of the frontline given our second-line efforts and data, I think probably there are several layers to maybe that question. So on the first layer is, we're still designing a fully powered randomized trial to enable registration based on overall survival. And from that regard, it doesn't really impact the fact that we deliver on overall survival. We still intend to deliver overall survival in front line, even after overall survival in second line. I think the second line data that we have reviewed so far, I think, give us further confidence about the monotherapy benefit and therefore, give us confidence about the arm with monotherapy as well as the combination. Therefore, we're actually fully evaluating and fully powering both arms independent testing them. So that does affect in that sense. That's the second layer. The third layer is, I think you may be hinting at a question we addressed previously, which is with the second approval in the U.S., there may be impact on crossover and whether that will impact our design. It doesn't really impact our design per se. It only impacts our operational footprint. I think we'll certainly assign the sites more on ex-U.S. to minimize the impact of crossover due to the availability of daraxonrasib for second patients in the U.S. Operator: Our next question comes from the line of Ami Fadia of Needham. Ami Fadia: And apologies if this has been asked already. I've been juggling some calls here. So my question is regarding the acquired alterations post dara monotherapy that was presented at the Triple Meeting. How do you see that potentially impacting the durability of response in first line? And where you're studying in combination with chemo, would you consider exploring combinations with other mechanisms at this stage? Mark Goldsmith: Thanks, Ami. I'm trying to get to the gist of that question. Would we consider combining daraxonrasib with other compounds that target other potential drivers that are resistance mechanisms? In order to increase... Ami Fadia: That's right. Mark Goldsmith: Sure. We're already considering it and we're already actively exploring some of those and are open to and may well expand that. There's obviously many potential targets that could influence the outcome if you were to inhibit them. And we look at these opportunities all the time. We have significant operations studying those, and we have a lot of inbound requests to combine things. And we try to prioritize them based on their -- the scientific data behind them. And for sure, we'll continue to do that. Operator: This concludes the question-and-answer session. I would now like to turn it back to Mark for closing remarks. Mark Goldsmith: Thank you, operator. Thank you to everyone for participating today and for your continued support of Revolution Medicines. Operator: This does conclude the program. You may now disconnect.
Operator: Thank you to everyone for joining Robinhood's Q3 2025 Earnings Call, whether you're tuning into the live stream at home or here with us in person. With us today are Chairman and CEO, Vlad Tenev; CFO, Jason Warnick; SVP of Finance and Strategy and Treasurer, Shiv Verma; and VP of Corporate Finance and Investor Relations, Chris Koegel. Vlad and Jason will offer opening remarks and then open the call to Q&A. During the Q&A portion of the call, we will answer questions from the audience, which includes institutional research analysts, finance content creators who may hold an ownership position in Robinhood and both institutional and retail shareholders. As a reminder, today's call will contain forward-looking statements. Actual results could differ materially from our current expectations, and we may not provide updates unless legally required. Potential risk factors that could cause differences, including regulatory developments that we continue to monitor are described in the press release we issued today, the earnings presentation and our SEC filings, all of which can be found at investors.robinhood.com. Today's discussion will also include non-GAAP financial measures. Reconciliations to the GAAP measures we consider most directly comparable can be found in the earnings presentation. With that, please welcome Vlad and Jason. Vladimir Tenev: Good to see everyone. It's great to be here with all of you today. We have a live audience again this time from Downtown San Francisco. And also great to, I think, for the first time in our earnings call, have institutional and retail shareholders, so buy side joining us. So welcome, and thank you. Also, we have our institutional analysts. So good to see a lot of familiar faces here. Q3 was another quarter of relentless product velocity. So we were excited to see that. It was really across our 3 focus areas, which, as a reminder, #1 in active traders, #1 in wallet share for the next generation, #1 global financial ecosystem. So I'll briefly go through each of these. Active traders. We want active traders to feel like they are at a disadvantage if they trade anywhere other than Robinhood. And we've rolled out a ton of great new products for active traders. You guys might have seen second annual HOOD Summit in Vegas just a couple of weeks ago. We announced a bunch of brokerage updates, shorting multiple brokerage accounts, AI-driven custom indicators powered by Robinhood Cortex, a whole new social platform, Robinhood Social. And we've got more. We've got more for you guys. We can't wait to share more next month at our first ever AI event on December 16. Innovation like this really has the active trader engine humming. In Q3, we had record equity and option trading volumes, and October looks even better. For both equities and options in the month of October, we had new single day all-time and new monthly records. So both of those businesses just continuing to perform strongly. Prediction markets are really on fire. It's hard to believe that we launched this just about a year ago with the presidential election markets. We've doubled volume every quarter since then to 2.3 billion contracts in Q3. And the month of October alone was up to 2.5 billion contracts. So October by itself was bigger than all of Q3 combined. Customers really love the product, and we're bringing them even more. We're now at over 1,000 live contracts, and we've expanded categories. So it's not just sports but also economics, politics, culture. We're making the UI much cleaner to experience even better. And I think it's really exciting to see where this can go. I mean, we love being early to this new asset class. And some people are saying this could be one of the largest asset classes because you can price risk in pretty much anything. We have a massive opportunity with assets as well. Turning to wallet share. Our assets are now up to over 1/3 of $1 trillion as the generational wealth transfer of $120 trillion is fully in motion. So I think it's really great to see our financial super app accelerating. On the long-term money side, retirement, now up over $25 billion, which more than doubled in the past year. And Robinhood Strategies, which we just launched in March, now has over $1 billion in assets and is one of the fastest-growing digital advisers. On the banking front, Robinhood Gold Card, now over 0.5 million cardholders with over $8 billion in annual spend. So the numbers there just keep growing. That's 5x growth in cardholders since the beginning of the year. And we'll get into this a little bit more in Jason's section, but we like what we see there. The customer behavior is good, and that's given us confidence to accelerate the rollout, and we're going to accelerate it even further. And Robinhood Banking started early customer readout -- early customer rollout quite recently. So far, we like what we're seeing there, too. Customers are direct depositing. You might have seen some nice screenshots of the user experience and the onboarding flow and people really love that they're getting interest, not just on their savings, but they have an opportunity to earn a good interest on checking. So it's really about simplifying things for customers. And the plan is to just keep scaling this, keep adding more services, more products. And last but not least, we've been really grinding to build out the #1 global financial ecosystem. So 10 years from now, the aim is to have over half of our revenue be outside the U.S. and also cut another way. Right now, we're majority retail. We think we can get to over half being non-retail institutional. And these are tough goals, but I think the opportunity is there, and we're going after it. Three areas of progress to highlight from Q3. tokenization, which are stock tokens in the EU. We're now up to 400-plus public companies and growing. There's a lot of innovation to be done. We're working hard. Robinhood Ventures in the U.S. So we found a way to give exposure to non-accredited retail to private companies, which we think is super important and a huge opportunity for us. We've already made some initial investments. We're working towards the public offering for Robinhood Ventures in the coming months. Bitstamp around the world, our first scaled institutional business, we're very excited about that. We are continuing to grow. We're adding capabilities. We're adding more institutional customers. Volumes are up 60-plus percent quarter-over-quarter for Bitstamp. And it's great to see that we're accelerating even as we're integrating. And I think that's like not a common thing. It's a big business. I think the team has done a really nice job kind of integrating and making sure that product velocity just continues to increase. And as a result of all this, great business results in Q3, revenues up over 100% year-over-year to a record of nearly $1.3 billion, record net deposits in the quarter, over $20 billion. We've already exceeded last year's record of $50 billion in net deposits, and we still have another entire quarter to go. So we feel really good about the traction there. Gold subscribers up to a record 3.9 million, and that's 14-plus percent adoption when you look at the overall net account base, and it's nearly 40% for customers that joined in quarter, our new customers. International customers, nearly 700,000 international funded, including Bitstamp. So the U.K. and EU are continuing to grow nicely. And we feel great about Q3 product velocity and results. I think it was a strong quarter, and I'll turn it over to Jason to go through financials before we get into Q&A. Jason Warnick: Sounds good. Thanks, Vlad. In Q3, we delivered another quarter of strong profitable growth. Revenue doubled while margins expanded and earnings per share more than tripled from last year. Year-to-date through Q3, revenues are up 65%. Earnings per share is up 150%, and we continue to stay disciplined on expenses to deliver 75% incremental adjusted EBITDA margins. And it's exciting that as our business grows, we're continuing to diversify. In Q3, 2 more businesses, —Prediction Markets and Bitstamp each surpassed $100 million in annualized revenue, bringing us to $11 million in total and underscoring the growing diversification and strength of our business. Prediction Markets reached that milestone in less than a year. It's our fastest in history, and it's already tracking towards a $300 million run rate based on October volumes. So just really, really going fast. Now let's take a closer look at our Q3 results compared to a year ago. Revenues doubled to an all-time high of nearly $1.3 billion as our customers remained engaged and continue to bring more of their assets to the platform. Trading volumes were up double to triple digits across equities, options and crypto, and we continue to grow market share across product categories. We're also seeing strong contributions from newer products like prediction markets, index options and futures. Interest-earning assets were up over 50%, driven by strong margin and cash sweep growth. It's great to see margin continuing to hit new highs as we win larger customers and gain market share. And securities lending also hit an all-time high with a strong market backdrop as IPO activity continued to pick up. And Robinhood Gold grew to 3.9 million subscribers. That's over 75% year-over-year growth as we continue to broaden the value proposition, including Robinhood Banking, which is just beginning to roll out. Turning to expenses. Q3 adjusted OpEx and share-based compensation came in at $613 million, it's about $40 million above the midpoint of our prior outlook range. This was driven by 2 items that are both related to our strong performance. First, stronger year-to-date results led to higher Q3 employee bonus accrual. That is higher for Q3, but also includes a catch-up for the first half of the year. And second, the significant increase in our stock price this year triggered vesting on the remaining tranche of the 2019 CEO market-based award. This resulted in unplanned payroll tax expense in G&A. We are through that award now, so glad you get to go back to your $40,000 a year. Looking ahead to the rest of the year, we're tracking toward full year 2025 adjusted OpEx plus SBC of around $2.28 billion, but it could be higher or lower depending on how the rest of the year plays out. This reflects our strong year-to-date business results, which had us tracking to the top end of our prior outlook range as well as some increased investment in new growth areas like Prediction Markets and Robinhood Ventures. I think each of these areas have significant potential for us. And lastly, this also incorporates the cost of Vlad's market-based award, which were not previously included in our outlook. I'll also provide a quick update on the strong results we're seeing so far in Q4, as you may have seen in the release. October was a strong month across the business. We saw continued momentum in net deposits, new records set across equities, options, prediction markets, and margin and a nice step-up in crypto volumes. And before we go to Q&A, I'm sure you saw in the release that I'm going to be retiring next year. I'll transition in Q1 from my operating role into an advisory role and will stay on until September 1. I'm incredibly happy and proud to share that Shiv Verma will be stepping into the role of CFO. I've worked closely with Shiv these past 7 years, and I've got absolutely complete confidence in him. You're going to find that he's seriously world-class. Vladimir Tenev: At this time, I'd like to invite Shiv Verma to join us up here. Okay. First of all, I want to thank Jason for all he's done for Robinhood. He's been an incredible steward of the company, not just the finance team, but the entire company and is leaving the finance team in a much stronger position than when he joined. Among his many assets, and you guys are obviously familiar with some of them, I would be remiss to not mention that his good looks were a main reason why we wanted to do these earnings on video, which everyone can agree. So I'm sure he'll be missed by this audience as well. I also want to congratulate Shiv. He's been working closely with me for some time now. You guys will increasingly see he's an exceptional operator. He's got a strong track record of not just being lean and disciplined, but also advocating for growth. And I think that balance is critical to so much that we do here. Tomorrow, Shiv celebrates 7 years at Robinhood. So while he's got his hands on nearly everything, he's currently SVP of Finance and Strategy and also our Treasurer. So Shiv, welcome. Maybe he'll say a few words as well. Shiv Verma: Yes. Thank you, Vlad. I'm so excited and humbled for the opportunity to serve our customers and shareholders. Much appreciation to you, the Board and the entire leadership team for the trust. To Jason, a heartfelt thank you. We joined 6 weeks apart, and we've been on quite the journey together. Many of you know Jason is a fantastic CFO, but he's also an incredible colleague, mentor and friend. I just want to express my sincere gratitude. For today, I'll keep it short and just want to introduce myself. As Vlad said, I've been here a little over 7 years, and I've seen the company scale from a couple of million customers and a few billion assets to now 27 million customers and over $300 billion in assets globally. I work closely with Vlad, Jason and the entire team. I've gotten to worn a lot of different hats. And as Vlad said today, I lead 4 teams: finance, strategy, corp dev, and treasury. In terms of what to expect, big picture, more of the same. Our top goal is still to grow and to keep delivering for customers to ship amazing products with high velocity. We also believe in a lean and disciplined culture, and this is personally where I spend a lot of time. We obsess about capital allocation and ROI. We pride ourselves on small teams that can deliver outsized results, and we believe in profitable growth. And lastly, our financial North Star is going to remain the same, grow earnings per share and free cash flow per share and compound long-term shareholder value, plain and simple. So I'm excited to partner with everyone. I'll turn it back to Vlad and Jason and talk about this great quarter. Jason Warnick: Thanks, Shiv, and I do look forward to seeing Shiv competing on Jeopardy someday. Chris, why don't we go ahead and take some questions. Chris Koegel: All right. Thank you, Jason. For the Q&A session, we'll start by answering shareholder questions from Say Technologies from shareholders who are joining us on video. And after the Say questions, we'll turn to live questions from our audience and then go to dial-in participants. So I'll kick it off with our first question from Say, which comes from Preston. Unknown Analyst: Well, Vlad and Jason, can you guys see me okay? Vladimir Tenev: I see you now. There you are. Look at that. He's got the Robinhood logo. Did you draw that yourself? Unknown Analyst: I painted that in class a couple of days ago. Vladimir Tenev: Awesome. Unknown Analyst: But I was wondering how quickly do you expect to roll out Robinhood Banking to users? Vladimir Tenev: Yes. Great question. This will be a relatively fast rollout. When you compare banking to the credit card, there's not the same considerations around making sure the economics between the borrowing and the spending are perfectly calibrated. I think banking is a simpler product in that way. And so the rollout will just be governed by customer feedback. We like what we see thus far, and so we're going to continue to rollout. And we expect that if there's no surprises, it should be pretty quick. We've already got customers trying it, including cash delivery available in some markets and early results are really good. So if you're in the state of New York and have access to banking, you can try it right now. Chris Koegel: All right. Thank you, Vlad. The next question is from [indiscernible]. All right. I'll read it. So [indiscernible] question was there was recent AWS-related outage. How are you strengthening platform resiliency to address that? Vladimir Tenev: Sure. Yes, that's a great question. So for those of you that don't recall this, even though pretty much the entire Internet was briefly affected, including my kids elementary school, they couldn't take attendance. AWS had an outage a few weeks back, and that led to degraded app performance for a significant number of our customers. Now the good news is it actually demonstrates how much progress we've made in the resilience of our systems over the past few years. If this had happened to us like an outage of the infrastructure provider of this magnitude, if it had happened a few years ago, we probably would have been fully down. But we made a lot of investments in that time period. And so even though things were slower and there were higher latencies, a lot of customers could manage their risk and place orders, although we didn't provide them with the type of experience that we would want. That's for sure. And one thing that you can be assured of is every opportunity, every outage like this, even if it's a third-party related is an opportunity for us to further strengthen our resilience. So we've been hard at work looking at how we could become even better. And that's internally and also in conversations with all of our partners. So this is part and parcel of what we have to do. We want to be our customers, not just primary financial account, but we want to be their secondary financial account as well, which means that we have to continue to be robust. Chris Koegel: All right. Thank you, Vlad. And let's take one more question from Say on video and see if we can go 2 for 3 here. So the next question is from Griffin. Unknown Analyst: Really great quarter, first of all, but I wanted to ask around the super-app nature and kind of the evolution of Robinhood. So obviously, it was started to democratize investing for everyone. And now as you evolve into the full financial kind of ecosystem and also the true super-app for the next generation, how do you see this ecosystem maturing? So what products do you think will kind of be the core tie around all of this? And also, how do you see the biggest opportunities for this next generation as everyone's finances get more complex? Vladimir Tenev: Yes. I think that's a great question. I mean you're seeing that part of this vision is somewhat predictable in a sense. We have to look at how does money enter our ecosystem. And of course, we have all of the existing mechanisms, but Robinhood Banking -- the goal with Robinhood Banking is to be the place where our customers deposit their paychecks as well. So that will handle the inflow of money. And a lot of the assets over time, we do believe will be invested. But the question is, can we minimize the reasons customers have for ever withdrawing money and make it as easy as possible for people to get money in. And over time, there will be new products, new product categories like Prediction Markets that arise. And we want to use our combination of best-in-class user experience and also economics to make sure we're a big player in everything that customers want to do with their money, not just in the U.S. but increasingly globally. So it's going to be a combination of getting broader, but also selectively going deeper in areas where we feel like we have competitive advantage. Chris Koegel: All right. Thank you, Vlad. That concludes our shareholder questions from Say Technologies. And so now we'll move to Q&A from our live audience. The first question is going to be from Patrick Moley at Piper Sandler. Patrick Moley: For my question, I want to say congratulations to both Jason and Shiv. Jason, really enjoyed working with you. Shiv, looking forward to getting to know you a little better. So I had one on Prediction Markets. You've obviously become one of the leaders in the space, but there's been a lot of new entrants recently. So I was hoping you could talk about just the strategy there and what you think gives you the right to win long term? And then as a second part to that, can you talk through some of the strategic considerations around maintaining your position today as kind of a retail distribution for the venues versus maybe trying to develop something internally, whether that's organic or inorganic? Vladimir Tenev: Yes, yes. So I think one of the advantages we have entering any market, Prediction Markets aren't an exception is that we have distribution. And we have lots of customers, 26 million-plus funded accounts in the U.S. that are trading and using us for all sorts of things. And from an infrastructure standpoint, we actually have an increasing set of tools that can plug in and are being built to be multi-asset. So not just our mobile app, but increasingly on web. We have Robinhood Legend. We have all of these things that, that we announced at HOOD Summit. And it's really an ecosystem of financial services, and you'll see great integration between all of our platforms and all of our assets and account types increasingly so in the future. I think when we think about vertical integration, like should we be a market maker or should we be an exchange in any asset? One thing we look at is, is the vertical integration going to be accretive to us? Is it going to be something that is increasingly commoditized over time? And my feeling for how this is going to evolve in Prediction Markets at least is there's going to be a lot of entrants in the space, a lot of exchanges. And in the same way that across equities and options, customers are well served because there's a wide variety of venues that are competing on cost to offer great execution. I think Prediction Markets will evolve that way, too. And I think in that world, the customer certainly benefits because different DCMs and markets will compete for who offers the lowest cost. And I think the power continues to be in our distribution and offering a wide variety of products and services. I think we're the only ones currently that have this powerful combination for traders, not just being able to trade Prediction Markets, but crypto, options, equities, futures, I think it's a great combination, and there are certain advantages for everything being in one place under a simple, easy-to-use platform. I think we can keep pressing on that advantage. And as you've noticed, I think the product has continued to evolve at a pretty rapid pace. I think you should expect that to continue and to even accelerate. Chris Koegel: All right. Next question from Alex Markgraff from KeyBanc. Alexander Markgraff: Jason, Shiv; congrats. Maybe, Jason, one on crypto, the crypto business for a second. Just want to understand better as you've moved through the third quarter and early part of the fourth quarter, the mix of smart exchange routing and how that's sort of factored into the numbers that we're seeing. Jason Warnick: Yes. So the blended take rate is kind of in the high $0.60 zone. And we are liking what we're seeing for smart exchange routing, really robust interest by customers. And the take rate that we're seeing so far into Q4 is kind of in the same zone. We'll have to watch how the mix plays out. But we like what we're seeing from customers. They're bringing more -- when they select smart exchange routing, they're bringing more of their trading volume to Robinhood. So we feel really good about the offering that we have. Vladimir Tenev: Yes. And I would just add one thing there. It's a big step towards pricing being a little bit more personalized, right? And what we had before, a lot of people ask us as well, your take rate is so much lower across the board. Can you raise your take rate. But I think the real story is a little bit more complex than that because certainly, if you're an active trader, you're trading huge volumes, you're able to use advanced offerings on exchanges. And in the past, we didn't have tools to offer those customers we might not have been super competitive for lower take rates. And that's what smart exchange routing really unlocks for us for those that are super active and bringing a ton of volume, almost like prosumer traders which we're seeing more of now that we've got Robinhood Legend, can we make Robinhood a no-brainer for them. And we've seen more and more of those customers choosing us and coming in here after smart exchange routing, which is very exciting because that's just customer segment that we felt we were underpenetrated with. Chris Koegel: All right. The next question is from Devin Ryan from Citizens. [Operator Instructions]. Devin Ryan: Vlad, Jason, Shiv, and Shiv welcome to the call. I know you've been a big part of the story already. So kind of welcome to the stage here. And Jason, to you as well, the success to date and the best practices you put in place with the firm on strong footing. So congratulations. Jason Warnick: Thanks, Devin. Devin Ryan: Question on private markets. Demand and activity that we're tracking is recovering. Last week, Morgan Stanley announced the acquisition of EquityZen. I know there can be some barriers with accredited investors, maybe that makes a little bit complicated. But can you just talk about whether there's demand from your customer base and especially as companies stay private longer, just -- and a lot of the values created in the private markets, it would seem like Robinhood is in a great position to both be a trading hub and help create liquidity in the system, but then also maybe even in primary capital for private markets. So the question is just whether there's an increasing interest in private markets, if there's a plan there to do more. I know it connects to tokenization as well and also if M&A would make sense there as well. Vladimir Tenev: Yes. Maybe I'll start, but Shiv has also been working on the Robinhood Ventures front. So maybe I'll ask him to say a few words as well. Look, I think private markets are a huge opportunity and just let's focus on the U.S. perhaps first because that's where we have the largest portion of our business, although international with tokenization provides some interesting opportunities as well. In the U.S., I think it's one of the biggest iniquities that we think is part of our mission to help resolve. You mentioned yourself, you have a lot of these companies that are staying private longer. They're avoiding the public markets. They're private in valuations of hundreds of billions now, right? And if you want access to the AI innovation economy or space technologies, you don't have a ton of pure-play public companies to select from. So we think it's a bigger problem, particularly as these technologies have so much potential to upend the lives of retail consumers, giving access to that is a big part of it. A few years ago, we rolled out IPO access. And I would say that at first, people were kind of skeptical about it, right? Like we would have to really work hard to get companies to be interested to give retail IPO allocations. And recently, pretty much every company that's notable that's thinking about going public comes to us, talks to us about their retail engagement strategy. And now they're looking at how do we engage retail better earnings calls, not just shareholder Q&A, but doing -- making earnings more compelling so that retail wants to actually watch and participate and learn as well. And we've noticed the allocations to retail going up in public companies, public IPOs, which we've been very happy about. And I think that's a trend that's going to continue. And we want to do that at earlier stage. And I think that's really the thesis behind Robinhood Ventures. And we found a way to do it, we believe, unaccredited. And maybe Shiv can talk a little bit more about that. Shiv Verma: Yes. We've been working on this for a while, and we're super excited. In terms of the demand, when we talk to customers, it's one of the top things they want. They want access to these best-in-class technology companies that they use and love. And when you ask them, there's 3 big things they want. First is daily liquidity. Second, not to be accredited. 85% of Americans aren't accredited today, so they get left out. And third, more concentrated portfolios. They want to access again the names they love. And so when we designed the product, that was our main use case, how do we do that? And we think we found a great way to do that. We're on a file with the SEC for Robinhood Ventures I. We're in the quiet period, so we can't say too much more there. But we think this vehicle will be great and expect pretty strong customer demand. And then the other thing we're working on is how do you make it great for companies because you need both the customers but also the companies. And so we're trying to think what's the best way to partner and innovate with these customers and companies as well and have some really great traction there. So we're excited to share more about the fund in the coming months. But as Vlad said, this is just Fund I and just to start, our ambitions in the space are pretty large. Chris Koegel: The next question is going to come from Jeff John Roberts from Fortune. Jeff John Roberts: My question is about tokenized equities, which seem to be the future, and they seem very cool. But I'm curious, when do you think they're going to scale Vlad? And also what implications they might have for Robinhood's revenue when it comes to payment for order flow or otherwise? Vladimir Tenev: Yes. Great to see you, by the way. I forgot to mention we have some folks from the media joining us today, too. So thanks for the question. So tokenized equities, as you might remember from the event in France, there's 3 phases to the rollout. And we're still in Phase 1, but we're really ramping up the number of tokens available on the platform. So we're now up over 400 available. And I think that makes us the largest in terms of selection. I think, the largest, maybe one of the largest at the very least. But I think where it really starts to get interesting is Phase 2 and Phase 3, which is them available for secondary trading on Bitstamp and then eventually them being on DeFi where the possibilities really start to multiply. You start thinking about self-custody collateralized lending and borrowing, which we think could be very, very disruptive as well. Currently, the model is just foreign exchange in the EU. Yes, we take a relatively low simple foreign exchange fee for tokens. And actually, we're pretty happy with that. I think that's 10 basis points, if I'm not mistaken, which is actually slightly higher than what we would be foregoing with payment for order flow. Chris Koegel: All right. The next question in the front row. Unknown Analyst: Vlad, this is for you. Anyone who's had the pleasure of being an investor or customer over the last many years, I think has seen an incredibly inspirational change in product execution base. I'm curious to understand from you guys, what have been the contributing factors there? How do you see that maintaining or increasing over the coming years, but really incredible job, and it's so fun to be a customer. Vladimir Tenev: Well, thank you. Yes, we appreciate that. I think that we've grown as a company and I think it's easy to sort of like dismiss what happened during COVID as we were sort of like too bloated and got too big and got away from us. But I think a lot of what we did actually was we built the foundation for the company subsequent to that. So we brought great people into the company. And I think we realized well -- we realized that we had to ask ourselves serious questions about what kind of culture we wanted, what we wanted to be, did we want to ship fast. And I think that set the foundation, both infrastructurally and from a people standpoint to the product velocity that you see now. So I think we obviously had to make some tough decisions getting fit. I think we've also -- I think this is sort of underreported. I think a lot of people don't like to talk about this, but we were pretty early to adopt AI and actually like drive that through the organization, particularly in the areas where we think there's maximum impact, customer service and engineering, where we actually -- I believe, we're best-in-class in our industry. So you'll hear more about that at the AI event, but I think that there's not a lot said about that because we're not a foundation model company, but I think we're right up there leading the financial services industry with -- how we're deploying it at scale. Jason Warnick: Two things that I would add, which I think both relate to speed of decision-making. We made the change to a general manager model. And I think having leaders over their specific business owning goals and driving against their milestones helped us move faster. The second piece was alignment on what our financial tenants were around kind of what the ROI and other financial guardrails are and just getting a complete alignment across the teams that build and the teams that support on what those hurdles are and what those requirements are allowed us to move even faster once there was alignment on that. So those are 2 aspects that I think help us move faster. Chris Koegel: All right. Yes, and also in the front row. Unknown Analyst: Cryptocurrency-related products and revenue have been an important part of Robinhood's growth story. What are your thoughts on adopting Bitcoin or other digital assets as part of your corporate treasury strategy? Vladimir Tenev: Shiv, what do you think about that one? Shiv Verma: So we spend a lot of time thinking about this. We like alignment with the community. We are a big player in crypto. We want to keep doing it. We like that our customers are engaged in it. What we always try to figure out is, is it the right thing for shareholders as well. If you put it on your balance sheet, it has the positives in that you're aligned with the community, but it does take up capital. Our shareholders can also go and buy Bitcoin directly on Robinhood, and so are we making that decision for them? And is it the best use of our capital? There's a lot of different things you're doing from new products for growth, investing in engineering. So we have this debate constantly. And I think the short answer is we're still thinking about it. There's pros and cons to both of it, and it's one that we're going to keep actively looking at. Chris Koegel: All right. Before we move to the virtual queue, are there any other questions from folks in person? All right. Now to the dial-in community. All right. [Operator Instructions] So the first question is from James Yaro at Goldman Sachs. All right. We're not -- we don't have James at the moment. So we'll go to the next question. And James, jump back in if you can hear us. All right. So the next question is from Ben Budish at Barclays. All right. Well, in the meantime, while we work to connect with our virtual community, Alex Markgraff, do you have another question? All right. Let's get Alex a mic. Shiv, do you want to tell -- share any more about yourself while we're waiting? Shiv Verma: I think we're getting Alex on mic. So we're in good shape. Alexander Markgraff: Vlad, you mentioned the wealth transfer in your prepared remarks. And I'd just be curious to get your thoughts as to in that sort of longer arc opportunity where we are today. And then Jason or Shiv, maybe just thinking about the contribution to growth, again, sort of a longer-term question, but when we think about the contribution to growth from the wealth transfer, how should we sort of think about that over a 5-, 10-year arc? Vladimir Tenev: Yes. Maybe I'll start with some of the things we're thinking about on the product side. We've been really thinking about how to make Robinhood more useful for you, the more of your family is on it. So -- and -- you see this with credit card and now the banking offering. Like the product is really a family product. Family is a first-class experience. You can get your partner, a credit card or a bank account and make it really easy to create accounts for children and other household staff as well. And a lot of people have been using it as like a family financial hub. And I think you should expect that to be broader and deeper across the entire ecosystem. You guys might probably recognize even though we've added a bunch of account types to the product, a few years ago, Robinhood just used to be a single individual brokerage account. We didn't even have retirement accounts. Now you have retirement accounts. You can have recently launched up to 10 custom individual brokerage accounts, which people have been really loving. But we still have a ways to go. We don't have trust. We don't have custodial, but we think that's an opportunity to continue to both get people when they're younger, but also when customers get wealthier, they tend to start diversifying, putting things into trust. So we see that as an opportunity as well. And I think this is an area where trade PMR is also going to become increasingly important as we work to integrate that platform, particularly as financial needs become a little bit more complicated, having a person there to help you navigate the entire thing and give a little bit more customized advice, I think will be a great complement to our suite of digital services. So over the next year, you'll see a lot more. We're attacking this problem and this huge $100-plus trillion opportunity from multiple angles. And I actually -- I don't think it's on the radar of a lot of our competitors. I mean you don't hear about people designing with the whole family in mind. And I think that's a big opportunity for us to differentiate. Jason Warnick: Stepping back, we've been winning market share really across every category that we're in. And I think as we execute against the vision that Vlad was sharing, we're positioned to take an outsized share of that -- of the wealth transfer. Chris Koegel: All right. The next question I'm going to read on behalf of James Yaro from Goldman Sachs. We are seeing tokenization across Robinhood and other firms and your tokenized equities product and those of peers are not interoperable as they are slightly differently structured and on different blockchains in many cases. Does this result in fragmentation of liquidity across the equity market? How do you expect this market to develop? And how would you make these tokenized stocks interoperable? Vladimir Tenev: Yes. Yes, I can peel that one. So right now, certainly, Robinhood stock tokens are not as interoperable as we would like, but that's just because they're actually not on DeFi yet. So they're very much in the Robinhood walled garden, which has certain advantages. Right now, every trade that a customer does is backed by a traditional equities trade in a TradFi market. And as we continue to build up the liquidity and the collection of -- and the supply of tokens, I think that's going to lead to actually a really great initial customer experience. Over time, I do expect greater interoperability. As you've seen with other assets in the crypto world, even if they're on other chains, the community tends to get involved and build bridges and wrappers. And so I think that's less of a concern. I think every major tokenized asset will eventually end up being multichain. So it's just a question of how do we get there. But interoperability, not a huge concern. I think it will come. In terms of liquidity fragmentation, I mean, that's nothing new, especially if you look at it on a global level across all asset classes, there's multiple exchanges. There are multiple market makers involved. And this is something that they know how to deal with, managing liquidity and trading across different venues. And I think in some ways, crypto technology and infrastructure makes that a somewhat easier problem because the cost and complexity of integration from an engineering standpoint is just -- tends to be much simpler. Chris Koegel: All right. Thank you, Vlad. The next question is for Jason, and it's from Ben Budish at Barclays. I'll read it on his behalf. You've called out a number of cost items impacting this year, some of which it sounds like won't recur. How should we think about the run rate into 2026? Jason Warnick: Yes. So we're working through planning right now for 2026. But what I would tell you is that we're approaching it the same way that we've approached the last couple of years, which is we think that we can invest for growth while delivering profitable growth, meaning margin expansion. The way that we approach that is that we ask the existing businesses to find efficiencies. And when we set targets and build our plans, we ask them to grow their cost base in the low single digits and in some cases, even lower. And we use those savings then to reinvest into growth, things like increasing spend in marketing, which we love the ROI efficiency of our marketing spend, but then also investing in new businesses. And you see the kind of outcomes that we've been able to deliver the last couple of years in terms of fast revenue growth and relatively more modest expense growth, and that's the approach that we're taking right now for -- as we plan for 2026. Chris Koegel: All right. Thank you, Jason. We're going to take another shot at going to the live phone queue. All right. So the next question is from Brian Bedell at Deutsche Bank. Brian Bedell: Can you hear me okay? Jason Warnick: We hear you. The telephone works. Brian Bedell: Excellent. All right. The old-fashioned, TradFi telephone. Well, I just want to say, first of all, congrats, Jason, on retirement. It's been great working with you, and welcome, Shiv. Looking forward to working with you as well. Maybe my question will go to Prediction Markets. So maybe if you can just talk about how the customer behavior has been forming just in the last 2 months. We've seen a big increase in volume, obviously, in September with the NFL and college games added. And how are you seeing that maybe sort of shape in coming into October? Are you seeing that volume increase coming from more new users coming into the Prediction Markets or rather greater usage of existing users? And then if you can talk about maybe just your thoughts around time line of launching new contracts and potentially even weaving in things around maybe single stocks that active traders can start using. Vladimir Tenev: Yes, I can start. We are working on this. We've actually increased the diversity of the contracts we offer tremendously in the past few weeks, launching entirely new categories. I mean, recently, lots of new entertainment and culture markets -- you've seen us broaden out the technology markets as well. So now we're offering over 1,000 live event contracts for customers to trade. We're seeing a lot of adoption. It might not be surprised because we have such a large established customer base, a lot of adoption from existing users, particularly traders, but we're seeing new customers as well. So there's customers that join Robinhood because they want access to our prediction markets offering. And I think there's plenty more we could do, not just increasing contract diversity, but making the user experience better, making it a little bit more discoverable in the product. And the team continues to work hard. You should see the product continue to improve week-over-week. Jason Warnick: Much like our active trader offering, a relatively smaller portion of our customers are participating in the market. And I think as we continue to work on the user interface and discoverability of the product, we've got expectation that we can take that higher. Chris Koegel: All right. The next question is from Dan Dolev at Mizuho. Dan Dolev: Great job again on an outstanding quarter. I wanted to thank you Jason. Thank you, Jason. It was a pleasure working with you, and I look forward to working with you, Shiv. And my question for you, Vlad, is Bitstamp very, very strong, I think, over 60% growth quarter-over-quarter. This seems incredibly strategic to Robinhood. Can you maybe elaborate on the long-term strategic importance of this because it seems to be off to a great start. Vladimir Tenev: Yes. And actually, it was -- we've had the pleasure of the Bitstamp team on the engineering side is actually at our offices. So we got to hang out with a lot of them yesterday with Johann and really talk through what's our plan for next year. And you're right that we've had pretty tremendous success growing volumes and improving the product post acquisition. But we definitely aren't getting complacent. We're not slowing down. We see a huge opportunity. I think Bitstamp can be very key to our tokenization plans as we enter Phase 2 of our tokenization vision. We really want to lean in there and give people access to real assets that have fundamental utility on the platform. It's also our first institutional business. And the one thing I really appreciate with institutional customers is they have lots of choices for where they take their business, and they're definitely not shy about telling us all of the things that we do -- that we need to do better, which there are a lot of, believe it or not. I think we -- there's so many things that we hear from our institutional customers. So we're going to have a busy year. And I think that as we continue to be successful and build more things, I think we'll see that volumes and market shares will follow. Chris Koegel: All right. Vladimir Tenev: Johann is very nervous watching me say all this. Chris Koegel: All right. The next question is from Brett Knoblauch at Cantor. Brett Knoblauch: Congrats on the quarter. On the Robinhood Social, could you maybe just dive into that a bit deeper and when you expect for that to rollout and how you expect maybe users to begin using that and how should impact maybe financials and when you would expect it to impact financials going forward? Vladimir Tenev: Yes. I think this is something where it may be somewhat challenging to forecast precisely the impact because the way we see it is this is going to be a new source of information for customers. It will be a source of trading ideas. We really want the product to be great, and we think that it can be just a source of information. We want to -- we think we can be the place where a lot of business and financial-related discussion can happen and hopefully originate. And we've done some experiments with social features over the years. And we have seen that when executed properly, and I think we're being very thoughtful with how to make sure all of the content is high quality, of course, with verification of traders, we have an advantage there. We think it can be an engaging product that makes Robinhood not just useful when you have an idea that you want to trade on, but it can be actually where your ideas originate, which I think is a big opportunity because it allows us to close the loop. And if the ideas come from Robinhood and we're the place where they execute on the trades, the platform just becomes more powerful. And that power and the network effect will continue as we continue to roll out more assets. I think we're going to be the only place where you're going to have live verified trades across not just equities, options and crypto, but also prediction markets and futures. And so the diversity of content, I think, should be quite compelling for folks that are interested in business and finance. Jason Warnick: In terms of monetization, we really see this as an opportunity to spin the flywheel, attract more customers to the platform because of the rich social experience and then be able to capture a greater share of trading activity and other financial activities across the platform. Chris Koegel: All right. Next question is from Ed Engel at Compass Point. Edward Engel: You talked about aspirations outside the U.S. and you guys talked about over half of, hopefully, one day, your user base will be outside the U.S. How does M&A play into that strategy? And can we expect you to kind of continue kind of launching market by market? Or could they create an opportunity to kind of launching a couple of markets simultaneously given a bigger transaction? Jason Warnick: Over time, I think it's probably a mix. I mean we naturally gravitate towards organic growth, and you're seeing examples of that, for example, in the U.K., but we do have an active corp dev team. Actually, Shiv has been leading that for some time now. And when deals make sense for us, great team, great technology, ability to accelerate the roadmap, we don't shy away from those kinds of opportunities as well. Chris Koegel: Okay. The next question is from Steven Chubak at Wolfe. Steven Chubak: Congrats, Jason and Shiv. I wanted to start with a question just on the international strategy and the growth that you've seen thus far. I was hoping to get some perspective, Vlad, in terms of how that growth is tracking relative to plan? Is there more that you can do in terms of product deployment and innovation to maybe help accelerate that growth? It just hasn't gotten as much airplay as like some of the other opportunities. So I was hoping you can unpack that a little bit further. Vladimir Tenev: Yes. I think it's still early in our international plan. That's why when we talk about this opportunity, it's really a 10-year vision because unlike the U.S., when we expand into these markets, we don't have an existing established customer base to cross-sell into. But we're really seeing signs that we like. And so we've continued to invest even more. Cohort activity, both in the U.K. and the EU has been improving, and that's actually led us to start doing marketing initiatives because we're starting to see like real ROIs to marketing activity as revenue goes online. In the EU with -- to catch a token event just a few months ago, we launched in 30 countries with stock tokens, which we're really excited about. I mean you've seen that ramp up. But again, it was a couple of months ago. So not much time has passed. So I think this is one of those things where 5, 10 years from now, we'll look back and we'll say, man, we underestimated the growth of that business as we tend to do with things that are early. But we like the early signs, and we're continuing to increase our investment. And there's so much to build. I mean, even I mentioned with tokenization, we're still just in Phase 1. So I think over time, it will become clear how those products actually have significant advantages over what you might find elsewhere. Chris Koegel: All right. Thank you. The next question is from Amit. Amit is investing. Unknown Analyst: A big thank you, Jason, over the years on your execution and congrats to you, Shiv, on your new role. My question is for you, Vlad. Going back to tokenization, you recently said tokenization will eat the broader financial system. Outside of just tokenized equities, can you give us a more larger look on how big of a size the opportunity is, why right now is the time to go after it? And what Robinhood is really thinking about over the next couple of years in terms of taking advantage of the opportunity? I know there's a lot of different other assets besides equities that could be tokenized. So can you just speak a little bit more on how you guys are thinking of the opportunity? Vladimir Tenev: Yes. I think the opportunity is very exciting. One of the things that I think is both a problem and an opportunity with the traditional crypto is that crypto and the traditional financial system up until fairly recently have kind of been 2 separate worlds. And I think Robinhood has a unique position as a scaled crypto business, but also a scaled business in traditional finance to bridge the 2 and actually make room for what we consider traditional assets, but really things like securities, products with real fundamental utility to leverage blockchain technology and actually be tradable on chain where customers can self-custody, they can engage with a variety of protocols, collateralized borrowing and lending and where those assets can be traded 24/7 real time in fractional quantities. You've obviously seen some efforts in private companies in the EU with our OpenAI and SpaceX token giveaways there. So I think we're really interested in continuing to pull on that and making those products available to customers. The other opportunities that I'm personally excited about is real estate, private credit, unique assets and collectibles like art. If you think about what's a part of your portfolio, if you're a high net worth individual, there's a lot of these assets that actually retail can't access currently. And I think that tokenization is a way to enable that at scale and sort of like reduce some of the downsides that would typically be associated with holding those assets, like lack of liquidity being locked into positions, not being able to like chunk the assets out and invest in portions of them. So that's why we're continuing to push on it, both in the U.S. and outside. And you should expect this to become bigger and bigger in the coming years, of course, starting with stocks, which is the asset class that we think has the most potential, and we're also closest to. Chris Koegel: Okay. Thank you, Vlad. The next question is from Roy from Crossroads. Unknown Analyst: Huge congratulations to Jason and also Shiv, and congrats to everybody on a great quarter, too. And very impressive, there's been a huge increase in predictions market activity. And I'm curious if the volume shown in the platform is a mix of Kalshi and Robinhood? Or is it just pure Robinhood? And also, is Robinhood considering expanding this internationally even alongside or even ahead of its current trading expansion plans? Jason Warnick: Yes. I mean, sure. The volumes that we're showing are the volumes that are on Robinhood. I'm sure Kalshi is counting the activity that we send to them, which is quite substantial. And for contracts that we offer, I think a very large chunk of Kalshi's volume is actually coming from Robinhood. In terms of international, Vlad, I'll let you cover that one. Vladimir Tenev: Yes. We're definitely looking into it closely. And you talk about tokenization as some of the previous callers have brought up, Prediction Markets is another asset class that actually has a strong crypto component, particularly outside the U.S. So we're definitely taking a look at what's the most effective way to get that to our customers. And I think it's going to be on a case-by-case basis, maybe slightly different in each jurisdiction, but we have some options as a scaled traditional player, but also on the crypto side, I think we will have our pick of what's best in each jurisdiction, and that's something we're definitely closely looking at. Chris Koegel: Okay. The next question is from Matti Daleiden from JPMorgan. Madeline Daleiden: This is Matti on for Ken. On shorting, has Robinhood experienced a noticeable pickup in customers applying for margin accounts in order to participate in the short selling since your 3Q launch? What have early adoption numbers and customer behavior looked like in these first few months? Vladimir Tenev: Yes. So shorting is something that we've announced at the HOOD Summit event in Vegas a couple of weeks ago. Customers are very excited about it. It's somewhat hard to believe that we've been able to get to this point without offering shorting. But we've been rolling it out to employees and doing final testing. It's actually not yet rolled out to external customers. So we think people will love it, but too early to tell. And I guess to answer your question, no. I mean, I don't think the increase in margin usage has been in anticipation of shorting because it's just not yet available. Chris Koegel: The next question is from Tannor with Future Investing. Unknown Analyst: First off, I just wanted to start off with a -- can you guys hear me? Jason Warnick: Yes, we can hear you. Unknown Analyst: Okay. Sorry. With a crypto question around crypto staking on the Robinhood platform so far, if there's any insights there? And then also just maybe a small request, if you guys are open to publishing event contract volume on their monthly metrics updates going forward? That's it. Jason Warnick: On the amount stake, I think it's -- we exited the quarter at about $1 billion. The market has been pretty volatile over the last few days. So I think it's come down a little bit, but customers are responding very well to the ability to stake. Vladimir Tenev: And what about the event contract volume published and monthly metrics? Jason Warnick: Yes, I'll leave that with Shiv as something to consider. I don't want to promise that for him, but we do like, in all seriousness, being as transparent as possible for investors, and we're always looking at ways to provide incremental disclosure to help you understand the business. So that's something we'll look at. Vladimir Tenev: Yes. Thanks for the suggestion. Chris Koegel: All right. That is the last question from our virtual queue. Is there anybody else in the audience here who didn't get to ask a question earlier that wants to ask a question? Vladimir Tenev: Perhaps one of the virtual... Chris Koegel: All right. Well, I think let's pass it back to you, Vlad. Vladimir Tenev: Okay. I think you guys should know that we are not slowing down. The team remains incredibly excited to continue our mission, and there's so much to do. Roadmap is full. AI event is coming up, which I think will be very, very exciting. So hopefully, some of you will be able to join us there, at least virtually. And to commemorate this occasion, bittersweet, though it might be, I've learned that Jason has a favorite dessert. And so we've actually brought one here, and Jason wanted to share this with everyone in person and virtually vicariously, a [Baked Alaska]. Jason Warnick: You all wonder why I'm retiring. Vladimir Tenev: Unfortunately, they wouldn't let us light it here even though that would have been very cool. So this is... Jason Warnick: It looks incredible. It's the first time I've ever had it, actually growing up, my favorite was Lemon meringue pie, and this brings back fond memories. So -- and underneath, I anticipate there's ice cream, which is my favorite. Vladimir Tenev: I wish they gave me the lighter, and I just like tried unsuccessfully to light it. But... Jason Warnick: Thank you, and I appreciate all the kind words of encouragement. And I do believe we're leaving the company in an incredible position. And I think you're going to find in short order that Shiv is, if not an upgrade, equally as good at driving the company forward. So thank you. Vladimir Tenev: Thank you. We'll see if he can finish an entire one of these. It looks like there's one for each of us up here. Shiv Verma: We'll bring some of the team to help with that. Jason Warnick: All right. Thank you. Vladimir Tenev: Thank you, all.
Operator: " Omer Karademir: " Ebubekir Sahin: " Ümit Önal: " Unknown Executive: " Madhvendra Singh: " HSBC Global Investment Research Cemal Demirtas: " Ata Invest Co., Research Division Unknown Analyst: " Operator: Ladies and gentlemen, thank you for standing by. I'm Costantino, your Chorus Call operator. Welcome, and thank you for joining the Türk Telekomünikasyon conference call and live webcast to present and discuss the third quarter 2025 financial and operational results. [Operator Instructions] The conference is being recorded. [Operator Instructions] We are here with the management team, and today's speakers are member of the Board, Ümit Önal; CEO, Ebubekir Sahin; and CFO, Omer Karademir. Before starting, I kindly remind you to review the disclaimer on the earnings presentation. Now I would like to turn the conference over to Mr. Ümit Önal, member of the Board. Sir, you may now proceed. Ümit Önal: Hello, everyone. Welcome to our 2025 third-quarter results conference call. Thank you for joining us today. Before we begin our quarterly presentation, I would like to take a brief moment to share a few personal words. Following my recent appointment as the Head of Cybersecurity Direct trade under Turkish Presidency, I have transitioned from my executive role as the CEO of Türk Telekom while continuing to serve as a member of the Board of Directors. I am pleased to introduce our new CEO, Mr. Ebubekir Sahin, who assumed his role on October 24. I have full confidence that under his leadership, Türk Telekom will continue to flourish. With that, I would now like to hand over the call to our CEO for his remarks before I return to take you through our third quarter results. Ebubekir Sahin: [Interpreted] Thank you very much, Ümit Önal. It's a great honor to take on the role of CEO at such an important stage of Türk Telekom's journey. I would like to begin by expressing my sincere gratitude to Mr. Ümit Önal for his leadership and continued contribution as a member of our Board. Telecom today stands on strong foundations built on transparency, accountability, and consistent delivery. As we move forward, we will continue to build on this strength, maintaining an open dialogue with the investment community and driving sustainable growth across all our businesses. I am pleased to meet you all in this occasion. With that, I would now hand the call back to Mr. Ümit Önal, who will deservedly walk you through the third quarter development. And also, I would like to thank him for the good inheritance has left. Ümit Önal: Thank you, Ebubekir Sahin. First, I would like to take you through some important achievements that marked the period. Starting with concession renewal on Slide #3. I am sure most of you are familiar with this slide, as we had the opportunity to engage with you through our webcast and subsequent meetings to discuss this important milestone in detail. To recap briefly, the renewed concession extends our right to operate and develop Türk's fixed telecom network until 2050 under flexible and manageable financial terms, providing long-term visibility and continuity for our business. The total contract value is USD 2.5 billion plus VAT payable over a 10-year period, enabling a balanced cash flow planning over the coming decade. We have also committed to an investment plan of USD 17 billion through 2050 in areas covered by the agreement. The plan incorporates building flexibility that allows us to maintain our financial discipline. Beyond its financial framework, this agreement reinforces Türk Telecom's leadership position in fixed line services and enables us to accelerate growth in verticals, including AI, IoT, cybersecurity, data centers, and digital platforms, whilst continuing to further capitalize on Türk's fiber transformation. On Slide #4, 2030 targets. Our priority will continue to be FTTH conversion investments, an area that we have been monetizing effectively. Having completed most of the copper-to-fiber transformation, we now aim to significantly expand the share of FTTH connections in our network, targeting 37 million homes by 2030 with FTTH penetration rising to around 76% and fiber subscribers reaching 17 million. By 2030, through accelerated FTTH transformation, we aim to meet the growing demand for high-speed connectivity, enabling a sevenfold increase in average speeds of our customer base from 86 megabits to 570 megabits. This transformation will not only enhance network efficiency and customer experience, but also help contain churn and strengthen ARPU growth potential. On Slide #5, let's look into where we are with the 5G process. We achieved strong results in the recent 5G auction, securing available spectrum that will carry our mobile business into the next phase of growth. We acquired key spectrum blocks in both the 700 megahertz and 3.5 gigahertz bands with a total spectrum fee of USD 1.1 million plus VAT payable in 3 equal installments in January 2026, December '26, and May '27. Following the auction, we became the operator with the highest capacity per subscriber in 3.5 gigahertz frequency and in our overall capacity, expanding our total spectrum portfolio to 315 megahertz. With 56% of our LTE base stations fiber-connected, we are well ahead of global 2030 benchmarks. Our pioneering 5G pilot tests across health care, agriculture, transport, sports, and tourism have showcased our network capabilities and our ability to effectively implement next-generation technologies. Slide #6, financial and operational overview. Consolidated revenues increased by 11% to TRY 60 billion. Excluding the IFRIC 12 accounting impact, revenue growth was 9%. Once again, 22% of EBITDA growth year-on-year was well ahead of the revenue growth, pushing the EBITDA to TRY 27 billion, along with a solid 410 basis points margin expansion year-on-year to 45%. Net profit for the period came in at TRY 10 billion. CapEx, excluding license fees and solar investments, stood at TRY 18 billion. Unlevered free cash flow grew by 14% to TRY 6 billion. Net leverage improved to 0.6x. Slide #7, net subscriber additions. Our total subscriber base reached 56.2 million with 2 million net additions Q-on-Q. Excluding the 178,000 loss in the fixed voice segment, quarterly net additions were 2.2 million. Both mobile and fixed Internet enjoyed strong demand from individual customers during high season, but the mobile additions were further supported by the corporate segment. Fixed broadband base remained flat around 15.5 million. Subscriber dynamics were mostly shaped by pricing and seasonality in the STP market. We gained 15,000 net subscribers in the third quarter, thanks to the 71,000 net additions in retail segment, more than offsetting the losses in wholesale segment in the aftermath of July price revisions. Subscriber activity strengthened Q-on-Q amid a robust back-to-school period with net additions exceeding Q2 levels. Activations were strong across both retail and wholesale segment. Despite intensified recontracting volumes and pricing actions, monthly retail churn averaged 1.2%. Mobile segment added 2.3 million subscribers on a net basis in its historic high performance, pushing up the total base to 30.8 million. Activation volume reached its historically highest quarterly level. This was mostly driven by the postpaid segment, but prepaid acquisitions also came higher compared to same period last year and our expectation. Churn volume, on the other hand, was parallel to same period last year and our expectations. Mobile net additions were further supported by 1.5 million of M2M additions by the corporate segment. Subscriber growth remained on a strong track with 776,000 net additions, excluding M2M. While postpaid segment added 2.1 million subscribers, prepaid segment posted 208,000 net additions, marking its best performance since Q3 '22. Slide #8, fixed broadband performance. We introduced the first price revisions in the wholesale segment starting from July 1. Subsequent to that, we adjusted the retail segment prices for the second time in July for new acquisitions and in August for existing customers. Most players in the market followed our price adjustments to varying degrees. Still, price parity stayed distant but less so compared to prior quarters. Both recontracting and upselling volumes scored higher Q-on-Q and year-on-year. ARPU growth remained strong at 13% year-on-year in Q3 despite last year's exceptional 21% base. The combination of solid upsell and sustained recontracting performance, along with successful price implementation, enabled us to maintain double-digit growth. We expect the robust ARPU trajectory to continue in Q4. Average package speed of our subscriber base increased by 50% year-on-year to 86 megabits, while average speed in retail base reached 94 megabits with 54% growth. 58% of our subscribers now use 50 megabits and packages compared to 44% a year ago. Moving on to mobile performance, Slide #9. Effectively, competitive environment remained unchanged from previous quarter. MMP market where we reclaimed our long-standing net leadership after a pause in Q2, maintained its historic high volume in the high season. That said, we introduced the second price revisions of the year in August, which has been followed by competition. Given that December tends to be the month where promotional activity peaks, we do not expect a major shift in competitive landscape in the final quarter of the year. Postpaid segment recorded 2.1 million net additions in the third quarter. With that last 12 months postpaid net additions surpassed 4 million in total. The ratio of postpaid subscribers in total portfolio rose to 78% from 74% a year ago. Excluding M2M, postpaid base added 569,000 subscribers, marking a strong underlying trend in the segment. Mobile ARPU increased 2% year-on-year over last year's strong 17% base. Obviously, M2M additions had some dilutive impact at the blended level. Excluding M2M, ARPU growth depicted a healthy growth of 8%, thanks to successfully managed pricing and churn, as well as higher recontracting and upsell volumes year-on-year. Excluding M2M, postpaid ARPU was also on a robust trend with 10% growth year-on-year. On Slide #10, let's take a look at the full-year outlook. We were pleased to see first half's robust performance running into the second half in our main businesses. We keep our operating revenue growth and CapEx intensity guidance unchanged at 10% and 29%, respectively. As of the first 9 months, we are looking into nearly 13% operating revenue growth. Although this points to some upside risk to our 10% growth forecast, we prefer a cautious stance against Q4 inflation outlook. We stick to our CapEx intensity guidance as we tend to see an accelerated spending in final quarters. 9-month EBITDA margin has once again surpassed our revised guidance for 41%, thanks mainly to strong operational performance. We now revise our full year '25 EBITDA margin guidance up to 41.5%, taking into account better-than-expected Q3 performance and our expectation of a contained OpEx in the final quarter. Before I finish, it has been an immense privilege to lead Türk Telekom. I must say, a company that stands at the heart of Turkey's digital transformation, whilst adhering to create sustainable growth at all times. I take great pride in having been part of this journey, one that saw us strengthen our balance sheet, accelerate fiber transformation, renew the fixed line concession agreement until 2050, and kickstart the 5G era. These milestones have laid a strong foundation for the next phase of growth and innovation. I would like to express my sincere gratitude to all our investors and analysts for your continued engagement, feedback and trust in Türk Telekom. Your insights have been invaluable in helping us move to the company forward. Thank you. Omer, the floor is yours now. Omer Karademir: Thank you, Ümit Önal. Good morning and good afternoon, everyone. We are now on Slide #12. In Q3, consolidated revenues increased 11% year-on-year to nearly TRY 60 billion compared to TRY 54 billion in the same period of last year. As a result, total revenues for the 9-month period reached TRY 166 billion, up 14% annually. Excluding the IFRIC accounting impact, Q3 revenue was TRY 55 billion, up 9% year-on-year, including increases of 14% in fixed broadband, 13% in mobile, 21% in TV, and 31% in corporate data, as well as contractions of 1% in fixed voice, 40% in international, and 14% in other segments. Fixed Internet and mobile have continued to lead growth, together making 78% of operating revenue in the quarter. The 2 lines of business made the largest contribution to more than TRY 5 billion higher revenues in total year-on-year. The strong performance was maintained, thanks to seasonal support, ongoing subscriber growth, multiple pricing actions, as well as the contracting and selling performance. The strong pickup in corporate data can largely be explained by the contribution from repricing of contracts and strong growth in certain verticals, such as data centers and cloud, cybersecurity, and managed services. ICT Solutions' revenue strongly bounced in Q3 from a slow pace of project revenues in the first half, but still fell short of last year's figure in the same period due to a significantly high base. The sizable jump Q-on-Q is largely attributable to new projects secured. We expect strong performance in ICT Solutions revenue to continue in the final quarter. In our international business, the decline is largely owing to contracting voice revenue. Moving on to EBITDA. Direct costs fell 2% year-on-year, with interconnection cost and equipment and technology sales costs coming down 42% and 4%, whilst tax and cost of bad debts going up 11% and 8%, respectively. Decline in interconnection costs was driven by contracting international revenue, whereas drop in equipment and technology sales cost was driven by last year's high base, similar to the revenue side of this line item. Annual increase in commercial costs moderated from last quarter to 11%. Other costs remained flat year-on-year. Within other costs, network expense dropped 3% year-on-year and personnel cost rose nearly by 2% under the impact of inflation accounting. Another quarter of successfully continuous cost base led OpEx to sales ratio down from 59% in the same period last year and 58% in the previous quarter to 55%, the lowest level over the comparable 11-quarter period of inflation accounting as operational leverage continued. 22% of EBITDA growth year-on-year was lifted EBITDA to TRY 27 billion from TRY 22 billion a year ago, along with a robust 410 basis points margin expansion year-on-year and 270 basis points Q-on-Q to 55%. Excluding the IFRIC 12 accounting impact, EBITDA margin was close to 48%. As such, 9 months EBITDA margin surpassed 42%, whilst cumulative EBITDA rose to TRY 70 billion with a sizable 23% increase from last year. Operating profit grew 46% year-on-year to TRY 16 billion in Q3, bringing the 9-month total to TRY 37 billion, up 63% year-on-year. Coming to the bottom line, TRY 6 billion net financial expense was nearly 30% lower both annually and quarterly. Annual trend can largely be explained by a 25% increase in USD TRY and Euro TRY rates on average, behind inflation in the same period. Lower interest rates and hedging costs also helped. The quarterly change in exchange rate was about 5% on average, again behind quarterly inflation. Additionally, the impact of volatility in financial markets, which was triggered in March has subsided quickly, leading to lower market interest rates and hedging costs on Q-on-Q basis also. Hence, expectedly, the net financial expense in Q3 proved more favorable compared to Q2. We recorded EUR 3.5 million of tax expense in total, largely driven by current taxes. In a normalizing trend, effective tax rate receded to 26% from 33% a quarter ago. As a result, we recorded TRY 10 billion net income for the period, up more than 150% year-on-year, thanks largely to significantly improved operational performance and lower net financial expense. With that, net income exceeded TRY 21 billion in the 9-month period, up nearly 70% year-on-year. Moving on to Slide #10. CapEx spending, excluding license fees and solar investments was TRY 18 billion, higher Q-on-Q as pace of investments pick up in line with our expectation. As such, 9 months CapEx on the same basis reached TRY 40 billion, taking the cumulative CapEx intensity to 24%. Moving on to Slide #14, debt profile. Cash and cash equivalents of which 25% is FX-based, totaled TRY 14.5 billion. The FX exposure includes U.S. dollar equivalents of TRY 1.9 billion of FX-denominated debt, TRY 1.4 billion of total hedge position, and close to TRY 190 million of hard currency cash. Net debt over EBITDA fell to 0.6x from 1 a year ago and 0.7 a quarter ago. We have been consciously deleveraging our balance sheet for some time in order to comfortably accommodate the upcoming multiple investments. Obviously, that has helped us immensely to successfully raise a comprehensive and efficient financing package in a short period of time. To elaborate on that, we are now on Slide #15. We have recently demonstrated a remarkable capacity to access a wide range of funding sources, enabling us to deliver on our major strategic commitments, notably the fixed line concession renewal and the 5G spectrum acquisition through our solid positioning in our business, robust financial power, and long-standing relationships with key stakeholders. In September, October 2025, we successfully executed a comprehensive USD 1.8 billion financing program, securing the long-term and cost-efficient funding from a wide range of global sources. The package included 4 long-term credit facilities totaling USD 610 million equivalent, USD 600 million 7-year green Eurobond, and USD 600 million with an average maturity of 5 years. These transactions further enhance our liquidity position and extend our debt maturity profile. On the loan side, we obtained highly competitive long-term facilities backed by leading international financial institutions. reflect continued confidence of global lenders in Telekom's fundamentals and disciplined balance sheet management. On the capital market side, we achieved 2 landmark issuances, reaffirming our strong market access and broad investor appeal. The USD 600 million green Eurobond priced at 6.95%, more than triple oversubscribed or the new green issuances attracted more than 100 global investors, with more than 60% allocation to accounts with a strong focus on ESG. The deal expanded our green financing portfolio to USD 1.1 billion, the largest in the Turkish telecom sector. Shortly after, we issued USD 600 million 5-year skruk at 5.6%, marking a historic place for the transaction as the first international corporate skuk out of Turkey. The Sukuk was met with more than 3x demand led by Gulf-based institutional investors. The deal achieved the tightest yield for Turkish corporates since 2022 and for Türk Telekom since it is debut in international debt capital markets, once again, proving our ability to ride large-scale funding at attractive terms. Through this transaction, we secured the resource to fund majority of our commitments for the announced long-term investments of which the payment plan is shown on the table at the bottom. Following the completion of the legal process, we expect to see the accounting impact of the renewed concession agreement in our Q4 '25 financial statements, along with the mentioned financing transactions. Finally, on Slide #16, we recorded USD 410 million short FX position as of Q3. Excluding the ineffective portion of the hedge portfolio, namely PCCS contracts, our short position was USD 450 million. Finally, we generated close to TRY 6 billion of unlevered free cash flow, which carried the 9-month figure to TRY 22 billion. This concludes my presentation. We can open up the Q&A session. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your margins performance. It looks very strong during the quarter. Incrementally, it looks like almost all of your revenues quarter-on-quarter growth in revenues basically translated to EBITDA. So if you could explain the cost dynamics and why the margins are so strong during this quarter, that will be very good. And is that the sustainable level we should think about going forward? So that's the first question. The second question is on your recent concession wins. So just wondering how the depreciation and amortization charges will be treated for D&A expenses going forward? Will you be looking at the entire length of concession? Or is there a straightline method? I mean if you could just talk about the annual number we should think about for D&A going forward, that will be on account of the 5G and the fixed concession that will be great. My third question is on your dividend policy, given that your margins in Q4 -- sorry, Q3 now is very strong for the full year, you are now guiding for more than 40% margin. Does that trigger a dividend event going forward, if at all? So if you could talk about that. So these are the 3 questions. I will get back in the queue for more. Unknown Executive: Thank you for your questions. On your first question, EBITDA margin, traditionally, we have got the highest season in the third quarter in our mobile and fixed businesses. The reason being the summer months and the back-to-school season. So we generally generate the highest margins in the third quarter. So this was the case, and in line with our expectation in the third quarter. And generally speaking, the fourth quarter is the lowest season, and that is why we are incorporating that into account for the fourth quarter and guiding for a 41.5% margin relative to our performance in the 9-month period of 42.2%. Is this a sustainable level? I mean this is really a good question because we have been enhancing our margin over the last 2 years since 2023 to be more specific by 9 points. So that's a huge margin improvement to. So for the next year, our aim is going to be to sustain these margins. And for the longer term, of course, for through operational leverage or efficiencies or transformation. So that would be the answer to the EBITDA question. The second question, how we are going to account for the concession is we did say that we will take it into our books in the fourth quarter. So what's going to happen is the fee that is $2.5 billion is going to be discounted today's value when we take it into the books. And then it will be written as CapEx. And then throughout the lifetime of the concession agreement, which is until 2050, it will be amortized on a straight-line basis. Have I answered your questions? [indiscernible] Madhvendra Singh: Yes, the D&A charges for the 5G. Unknown Executive: Yes, it will be more or less the same. So the amount that we are going to pay for the 5G is THB 1.4 billion. So I don't know, I mean, if it's going to be the fourth quarter or the first quarter of 2026. But when we take it into our books, it's going to be the similar methodology. So it's going to be recorded as CapEx, and it will be amortized throughout its lifetime, which is 2026. Ebubekir Sahin: [Interpreted] Allow me to answer your dividend-related question. First of all, 2025 is not finalized yet, and we haven't seen the fourth quarter yet. So first, we need to see the year-end results. Once we complete 2025, the Board of Directors, to which I am a member, is going to make a decision to propose the general assembly for the dividend -- if the dividend to be paid. So we should definitely keep in mind one thing. The upcoming period includes our annual investment expenditures as well as the fixed line concession and 5G frequency payments. In this regard, 2026 is particularly noteworthy in terms of looking like accumulation of payments. Of course, the final decisions will be made and taken by our main shareholders. However, as in previous years, when making a dividend decision, our Board of Directors will consider our company's debt service profile, cash flow, and investment needs in the coming years. Madhvendra Singh: If you could just details of any price hikes you have taken in the third quarter in mobile and fixed side? And the second question is on the hyperinflationary accounting. There were some talks about Turkey coming out of it. So in that scenario, hyperinflationary accounting is ended. What impact do you think will have on Telecom earnings and outlooks? Unknown Executive: Thank you again for the questions. On the hyperinflationary accounting, the methodology and the discussions is for the -- I mean, at the first place for the legal accounts, not for the IFRS accounts, which is all the CMD accounts. So it is early to say that it's going to be abolished for the Capital Markets Board reporting. Therefore, I mean, for the time being, it would be reasonable to assume that we will continue at this -- and on the price hikes, yes, I mean, there were several price hikes in the third quarter. To recap, we did the first price hike in the wholesale FPB segment. It was, I think, along the lines of 49%, 49%. And that was followed by the second price increase in the retail segment, which was about 13% on average. And following that, these are for the new acquisitions. And following that, we did the usual thing with a 1-month lag, and we increased the prices also for the existing customer base in retail segment in August. And that was around the same level. And in mobile, there was also the second price hike of the year in August, and I think it was around 10%-ish. So I mean, it will be reasonable to say that for the time being, I mean, we are more or less done with the price increases for this year, and we are preparing our budget for the next year for the -- I mean, all of the KPIs and price increases. Operator: The next question comes from the line of Cemal Demirtas with Ata Invest. Cemal Demirtas: Congratulations for very good results. First of all, I would like to thank Ümit Önal for a very good performance during his time. Sincerely, I really appreciate from the investor perspective, and I'm trying to be objective as much as I can. Just I want to point out that. And I wish the best to Mr. Ebubekir Sahin. And I think it will be good for him to just get your experience when you are in the Board. So it will be definitely support for him. And I wish you the best for your term. I think it's going to be a challenging, but very interesting time. And I think most of the uncertainties ended at least in terms of the regulatory side. So I wish you the best. at all. My question is about -- the first one is about the short-term performance. In third quarter, you had very good performance. And could we see some upside risk to your estimate? Is there any specific reason for you being very cautious about the fourth quarter, or just being just conservative? That's my first question. And the second question, I think for the following years, we need -- you will need more guidance from you from this -- because this investment period time. And at least for 2026, could you mention anything about the CapEx over net sales ratio or net debt to EBITDA limits you will have during 2026 or 2027? And the third one is about the financing side. And from the previous quarters, each quarter, we had difficulty to understand the high level of FX, even if there was stability in the currency side. But with this quarter, we see real improvements in terms of the -- I don't know if there was a specific in this quarter or more stability after a very volatile second quarter. So could you give us some hint about the fourth quarter if the currency level and the interest rate -- if the currency level continues like this and the interest rates coming down slowly, could we assume a similar level of financial expenses? Ebubekir Sahin: [Interpreted] Allow me to start and leave it to my first of all, I would like to thank you for your nice words. I mean I have been working as the CEO -- I have been working as the CEO of this company for over 6 years. And also I have been a part of the member of the Board of Directors for 3 years. Within this process, we have always carried the responsibility of abiding by the corporate governance principles, and we have always had this transparent communication with you. As of 24th of October, Ebubekir Sahin has taken over the CEO position. It's like carrying the flag from now on. He's going to be carrying this leg just like we have been doing so far, and I'm sure he's going to raise it even higher. And as we have said, I will continue as the Board of Director -- as the member of the Board of Directors, and I will be giving the best of my support. We know that, as you said, we have actually left behind a very important milestones and uncertainties behind. And now we have also got a very important momentum. And I believe Mr. Sahin is going to add better and more successful performances, which will be sustainable for the company. And then I will continue to answer your questions. I believe it would be reasonable to evaluate our 2025 operating income growth expectations by considering the base effects that emerged last year on the cost of inflation. We have recently seen some volatility in inflation with negative surprises in September and slightly positive surprises in October. As you know, our end-of-2025 inflation forecast is 29%, but we will be closely monitoring the last 2 months of data. Therefore, while our 9-month real operational growth was 12.7%, we choose to maintain our 2025 forecast at guidance at 10%. I mean, yes, if you see a positive trend in inflation over the last 2 months, we are run the risk of exceeding our 10% guidance. However, if inflation exceeds expectations, we believe our forecast is well protected and does not pose any downside risk. My friend continue to answer your question. Ümit Önal: For your financial expenses question, I'm going to report that. The financial expenses consists of the interest payments and hedging costs. As we have discussed in the second quarter investor call, we have stated that for the second quarter, the volatility in the market impacted our hedging costs. But we are not expecting that to continue, and we expect to decline in the third quarter. So that's why our hedging cost declined for the Q3. And also the interest payments also declined with the half of the disinflation program Central Bank. And in addition to that, lastly, our total debt is declining. So the leverage ratio came to 0.6 at the moment. Cemal Demirtas: There was one question about 2026 net debt to EBITDA and the CapEx over net sales ratio, where should that ratio be standing? Just a rough picture or indication. Ümit Önal: For the leverage ratio, our expectation for the next year, we have stated several times in quarter calls, we said that in our operations, we don't need to borrow. We don't need additional financing since our operations generate cash. So that's why our leverage declined to 0.6 at the moment. But for the upcoming 5G and concession payments, the leverage ratio, unsurprisingly, will increase. But we can say that it will not reach to a level, let's say, to close to 2.5x. But we can say that it will make its peak in 2026. But it's going to decline since our payments will be done, and with the help of our operations with the help of its operations, we are expecting it will be well below 2.5. And after its peak, it's going to decline in the year 2027. For CapEx over revenues, we can expect since regarding the time of big investment period for 5G and concession. So we can expect similar levels of this year's CapEx over sales -- CapEx intensity ratio for the next year, maybe next couple of years for our mainly FTTH conversion and 5G rollout. But we can expect it will decline to its historic average levels in the coming periods. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congratulations on the results and also on the changes within the team, and all the best of luck. I have just maybe one follow-up question regarding your revenues outlook or revenue growth outlook. Do you think -- I mean, this year, it has been very great 10% and looks like you're on track to achieve that. So I was wondering how sustainable is this level of revenue growth going forward, maybe for next year and after that, given the concession expansion and the 5G? Unknown Executive: Thank you, Daniel. I think we are going through a relatively high growth period over the last couple of years because part of that was driven by the recovery from high inflationary periods. '24 and '25 have been great. We have to expect some normalization for the next year. But you're right, we have got new drivers now that we should be working on strategizing. These are the securing of the concession agreement and securing a successful result in the 5G auction as well. So we haven't finalized our budget yet. It needs a few more rounds to be completed, and we will be sharing our guidance together with the fourth quarter results. But I can tell you that we will hopefully, I mean, maintain a momentum in this business because unless an exogenous factor comes into the play, we have to be, I mean, building on this momentum. And therefore, we are hopeful and we are optimistic that we will be sharing a nice real growth together with you in the guidance. So that's all I can say at the moment. But hopefully, we will not -- I mean, keep you in the dark for too long. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Türk Telekom management for any closing comments. Unknown Executive: Thank you. Thank you, everyone, for joining us today, and we'll see you next time. Thank you. Have a nice day. Bye-bye. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.
Operator: " Andrea Sejba: " Rajiv Prasad: " Scott Minder: " Alfred Rankin: " Alfred Moore: " ROTH Capital Partners, LLC, Research Division Edward Jackson: " Northland Capital Markets, Research Division Unknown Analyst: " Imperial Capital. Jack Fitzsimmons: " Prudentials Eric Ballantine: " CVC Credit Partners, LLC Operator: Good day, everyone, and welcome to the Hyster-Yale Inc. Third Quarter 2025 Earnings Call. [Operator Instructions]. Please note that today's event is being recorded. I'd now like to turn the floor over to Andrea Sejba. Ma'am, please go ahead. Andrea Sejba: Good morning, and thank you for joining us for Hyster-Yale's Third Quarter 2025 Earnings Call. I'm Andrea Sejba, Director of Investor Relations and Treasury. Joining me today are Al Rankin, Executive Chairman; Rajiv Prasad, President and Chief Executive Officer; and Scott Minder, Senior Vice President, Chief Financial Officer, and Treasurer. We'll be discussing our Q3 2025 earnings release issued yesterday. You can find the release and a replay of this webcast on the Hyster-Yale website. The replay will remain available for approximately 12 months. Today's call contains forward-looking statements subject to risks that could cause actual results to differ from those expressed or implied. These risks are outlined in our earnings release and SEC filings. We'll be discussing adjusted results, which we believe are useful to supplement our GAAP financial measures. Reconciliations of adjusted operating profit, net income, and earnings per share to the most directly comparable GAAP measures are available in our earnings release and investor presentation. With that, I'll turn the call over to Rajiv. Rajiv Prasad: Thanks, Andrea, and good morning, everyone. I'll begin with our view of the current economic environment, how we're shaping customer behavior, and how Hyster-Yale is responding. Scott will follow with our financial results and outlook, and I will wrap up before we open the calls for questions. Throughout the first half of 2025, we maintained a cautiously optimistic outlook, predicting an improvement in market demand in the second half of the year. However, since our last update in August, that optimism has faded largely due to the impact of tariffs on the market demand and on our costs. This shift in sentiment is not unique to our industry. It's a broad trend across the capital goods sectors. Customers are navigating volatile interest rates, tariff pressures, and geopolitical developments, all of which are influencing long-term investment decisions. This is reflected in our own experience during the third quarter. These were overall lift truck market demand declined across all regions and most product categories compared to Q2. Many customers are postponing capital expenditures and taking a more conservative approach to balance sheet management, citing uncertainty about the trajectory of interest rates, inflation, and broader economic stability. Despite the broader market contracting, Hyster-Yale's booking activity ticked higher compared to both the prior year and the previous quarter. This dollar value booking increase is partly due to higher prices on our trucks, driven by higher tariff-related material costs. Bookings rose to $380 million in Q3, up from $330 million in quarter 2. Gains were led by the EMEA and APAC regions, while the Americas remained stable. Bookings improved across all product classes, with Class 1 trucks showing solid growth, improving our positioning in the warehouse segment. Notably, in October, we saw a strong bookings rate in the Americas for Class 5 trucks and, to a lesser extent, Class 2. While it's still early, this uptick may signal that the market is beginning to stabilize and that customers are recognizing the need to invest in new equipment. We view this as an encouraging indicator amidst an otherwise cautious environment. While quoting activities remain solid, ongoing macroeconomic uncertainty, largely due to tariff and interest rate discussions, is causing delays in customer order conversions. To safeguard our competitive position, we're implementing targeted initiatives aimed at increasing bookings through enhanced market participation and quote closure rates. These actions support our dual commitment to deliver optimal solutions and outstanding customer service. For example, we've announced our product offerings by expanding to our full range of modular and scalable lift truck models that support customer applications from basic to complex. This allows customers to select configurations that best fit their operational requirements and budget constraints. The flexibility of our solution helps customers increase productivity at the lowest cost of ownership. In addition, our advanced warehouse truck technologies provide improved safety, efficiency, and automation options, helping customers optimize their material handling processes and reduce operational costs. On the customer care front, we're strengthening our connections with dealers and end customers by offering comprehensive support throughout the buying cycle. Our dedicated account teams work closely with customers to analyze fleet performance, identify opportunities for upgrade, and ensure recommendations are tailored to each customer's specific challenges. We also provide responsive after-sales support, including rapid maintenance services and proactive parts availability to minimize downtime and keep operations running smoothly. Regular training sessions for dealer personnel ensure that our partners are equipped to deliver prompt, knowledgeable service to end users. By engaging closely with our customers, we can better understand their changing priorities and collaborate to solve their most critical needs. We back these efforts with robust support services, continuing to deliver value beyond the product. We strive to help our customers maintain efficient, reliable fleets across all business conditions. We have a deep understanding of our market and our customers' buying cycles. We recognize that many customers are choosing to postpone investment in new lift trucks due to the current environment. However, we're confident in the market's long-term growth drivers and demand for existing fleet upgrades over time. Our experience shows that although customers may defer purchases for a period, the rising cost and operational efficiency issues associated with maintaining aging equipment make new fleet acquisitions inevitable. As maintenance expenses and downtime increase, the financial and productivity advantages from new truck investments become more apparent. This cycle reinforces our confidence in the long-term stability and vitality of the market. We're committed to supporting our customers through every life cycle phase with flexible solutions tailored to their evolving needs. Globally, the competitive landscape is changing rapidly. We are facing increasing pressure from low-cost foreign competitors, especially in South America and Europe. This competition is most pronounced in the Class 5 market for standard and value configurations, compressing margins in those markets. To address these challenges, we are expanding our lineup of modular, scalable models to more fully meet the requirements of all potential customers. These products, including those from our own China operations, will make us more competitive across all capability and price points in this critical product class while also protecting our margins. In addition, our new warehouse products and advanced truck technologies are helping us to stand out in global markets and are receiving strong customer feedback. At the end of Q3, our backlog stood at $1.35 billion, down from $1.65 billion in Q2. Shipments outpaced new bookings in the quarter, particularly in the Americas. This reduction was driven by fewer trucks, partially offset by higher value trucks due to increased product costs and favorable currency further diminished the real value of our backlog, intensifying the effect of lower truck volume. Maintaining a backlog that supports multi-month production is increasingly difficult in the current environment. The pace of market recovery remains below expectations despite underlying demand as a result of persistent uncertainty. As a result, we are managing our production schedule and inventory levels with caution, ensuring alignment with real-time market signals. Our expectation is for demand to remain soft in the near term, with production rates adjusted to reflect actual booking and cancellation trends, as well as backlog held. We are moderating near-term production expectations to preserve manufacturing efficiency, optimize inventory, and maintain appropriate backlog levels. As a result, we anticipate further backlog degradation in the near term. If shipments continue to outpace bookings, we may need to take additional actions to better align our cost structure with evolving market conditions. We've seen many market cycles, and our experience tells us that resilience and readiness are key. Regardless of external factors, we remain focused on what we can control: efficiency, productivity, innovation, and responsible cash management. To ensure this commitment, we're executing on several fronts to position Hyster-Yale for long-term success. These are operational efficiency. We continue to streamline operations, optimizing inventory levels and improving working capital efficiency to generate cash in a lower revenue and profit environment. Manufacturing flexibility. Our module vehicle designs allow us to produce the same model in multiple regions, giving us the flexibility to shift production in response to tariff changes or supply chain disruptions. Customer engagement. We're deepening our relationship with our dealers and end customers. We're listening closely to their evolving needs and co-developing solutions that address their most pressing challenges. Product innovation. We're accelerating the rollout of new products and technologies that enhance performance, reduce total cost of ownership, and differentiate us in the marketplace. Market readiness, we are watching leading indicators closely and preparing to scale quickly. Our goal is to be a first mover, ready to capture growth as soon as customer confidence returns. Global optimization. We're realigning our manufacturing footprint and supply chain to ensure cost competitiveness and responsiveness across all regions. These actions are enabling us to navigate the current environment with agility and discipline so that when the market recovers, we're prepared to emerge stronger. Over the longer term, we're reducing earnings volatility through a lower breakeven point and more resilient product margins. We remain committed to our strategy. By maintaining operational discipline and investing in the right areas, we're confident in our ability to deliver sustainable growth and profitability over time. Now I'll turn it over to Scott Minder to walk you through our financial results and outlook for the remainder of 2025. Scott Minder: Thanks, Rajiv Prasad. Let's take a closer look at our Q3 results, starting with the Lift Truck business. Lift Trucks Q3 revenues were $929 million, reflecting a 4% decline compared to the prior year. This decrease was primarily due to lower truck volumes across all product lines. Lower volumes were a direct result of ongoing economic uncertainty, which has led to a slowdown in customer bookings over the past several quarters. In response to the softer demand and lower backlog, we adjusted our production rates to better align with current market conditions. Looking at the results by region. In the Americas, truck volumes fell with a significant drop in our higher-value Class 4 and 5 trucks in the 1 to 3.5 ton range. Many industrial customers deferred lift truck purchases due to lower equipment utilization rates within their existing fleet. These were largely caused by reduced manufacturing output amid demand uncertainty. Looking at EMEA, revenues increased year-over-year, primarily due to higher truck sales and favorable currency translation. Sequentially, overall lift truck revenues improved, supported by stronger sales of higher-value 4- to 9-ton electric and internal combustion trucks. Q3's operating results fell short of our expectations, primarily due to higher tariff costs, including new tariffs on steel imports during the quarter. Operating profit declined by $27 million year-over-year, mainly driven by lower truck volumes. Some of these negative impacts were offset by our strategic pricing actions and a favorable sales mix shift toward higher-value 4- to 9-ton trucks in the Americas. Additionally, Q3's operating costs decreased compared to the prior year, mainly because of lower employee-related expenses, including reduced incentive compensation and savings from Nuvera's previously announced strategic realignment. Breaking down regional performance, operating profit in the Americas declined primarily due to higher tariff costs and lower truck volumes. These negative factors were partially offset by increased selling prices and reduced freight expenses. In EMEA, the operating loss was mainly a result of pricing and margin pressures as lower-priced foreign trucks increased their market share in a variety of European markets. Additionally, material costs were elevated due to inflation. Sequentially, adjusted operating profit decreased largely due to lower product margins from increased tariff costs. Moving to Bolzoni. Q3 revenues were $87 million, dropping 11% year-over-year. This decrease was primarily driven by our planned phaseout of lower-margin legacy transmission components and softer lift truck demand in the U.S. Gross profit declined moderately, but a favorable product mix offset the impact from lower volumes and reduced manufacturing overhead absorption. Q3 operating profit was $2.1 million, down from $6.2 million in the prior year, with higher employee-related costs negatively impacting profitability. On a sequential basis, Bolzoni sales decreased mainly due to lower specialized attachment sales in the Americas. Gross profit remained stable, supported by a favorable product mix in EMEA. However, operating profit declined due to increased employee-related expenses. Next, I'll cover the company's tax position. We recorded an income tax benefit of $2.9 million in Q3, reflecting the positive impact of recent U.S. tax reform. This legislation allows us to immediately expense research and development costs versus deferring a significant portion over the next several years. Looking at cash flow and our balance sheet. Q3 operating cash flow of $37 million improved by nearly 25% from Q2's level. This favorable move was largely driven by improved inventory performance. Excluding foreign currency and tariff-related impacts of $40 million, Q3 inventory decreased by $155 million year-over-year and by $35 million sequentially. Q3 working capital stood at 20% of sales, down from Q2 levels, but above our long-term target. The company continues to make progress on its initiatives to align production schedules with available materials and expects further inventory improvements in the coming quarters. Q3's net debt of $397 million remains in a solid position, improving modestly from the prior year and prior quarter. While our debt levels did not reduce significantly, stability in a volatile demand and cost environment highlights our focus on cash generation and disciplined capital allocation. The company's unused borrowing capacity of $275 million increased by 6% from Q2. Q3's financial leverage, as measured by net debt to adjusted EBITDA, increased to 2.9x due to lower earnings. We remain committed to managing our debt and leverage ratios across market cycles. We're focusing on the things that we can control, optimizing working capital and maintaining operating and capital expense discipline. These actions help to ensure that our leverage level remains supportive of our strengthened credit ratings. With that, I'll move on to our fourth quarter outlook. First, I'll outline some key tariff-related assumptions in our guidance. Chinese tariffs in aggregate of 79% Section 232 tariffs included for steel and steel derivatives. Our Section 301 tariff exemption for lift truck parts ends on November 29, 2025. There are no lift truck-specific tariffs put into place. Our demand projections lose bookings, backlog, and market trends. We assume no demand drop due to a U.S. or global economic recession. Finally, our proactive sourcing, costing, and pricing initiatives are expected to reduce but not fully offset negative tariff impacts. Recent informal announcements suggest that Chinese tariff levels will be reduced and that our Section 301 tariff exemption will be extended by 1 year to November 2026. These changes, if finalized, will benefit our Q4 financial results by $2 million to $3 million compared to our current assumptions. Evolving tariff policies continue to shape our financial outlook. Despite our mitigation strategies, tariffs remain a major challenge for the company. In Q3, direct tariff costs totaled $40 million, while also dampening demand levels across a variety of end markets and customers. These negative impacts are expected to persist for the foreseeable future. The business is working diligently to limit these negative impacts. Our sourcing teams proactively seek alternative suppliers and regional solutions to reduce our exposure to high-tariff countries. At the same time, we're driving operational efficiencies and maintaining cost discipline to enhance our margin resilience. In addition to these actions, pricing has been a critical lever in our mitigation strategy. As the tariff landscape has shifted in value and focus, we've seen a variety of competitor approaches in the market. As an American company with a significant domestic manufacturing base and global supply chain, we felt the tariff impact more quickly and often more robustly than others in our market. As a result, we led with pricing actions that have delivered a strong year-to-date benefit. However, they've not fully offset the negative tariff impact, largely due to the rapid changes in tariff rates applied to different countries. Competitive intensity has increased in our core markets as industry volumes have contracted. As a result, we're focused on a range of tactical and strategic actions to support long-term growth and profitability. The ongoing tariff policy uncertainty makes it increasingly challenging to predict future financial impacts. In this environment, we remain committed to cost discipline and to driving revenue through higher truck volumes, increased penetration of new technologies, and enhanced market adoption of our new products, including additional modular truck configurations and lithium-ion batteries. With the foundation laid, I'll cover our Q4 outlook, starting with the lift truck business. We expect Q4 revenue to decline compared to Q3 due to lower production rates caused by reduced bookings over the past few quarters. We're projecting a moderate operating loss mainly due to lower production rates and persistent tariff headwinds. We anticipate that elevated tariff levels and softer market demand will remain negative factors into early 2026. Our outlook assumes positive impacts from cost control and prior pricing actions to service partial offsets. We'll watch market demand and tariff rates closely, and we will take additional cost actions as needed to maintain profitability. Longer-term, we continue to make progress on the project announced in late 2024 to streamline our U.S. manufacturing footprint. So far this year, we've invested $2.4 million with another $3 million planned for Q4. This project is expected to deliver between $30 million and $40 million in annualized savings by 2027, lowering our financial breakeven point and enhancing our margin resilience. Turning to Bolzoni's Q4 outlook. Revenues are projected to decrease slightly compared to Q3, reflecting weaker demand in U.S. operations. Operating profit is expected to be modestly above Q3 as product mix improvements compensate for lower sales volumes. I'll close with a few comments on financial discipline and capital allocation and how they position us for the future. Over the past several years, we've increased our business's resiliency, improving product margins with pricing discipline and lowering costs, ultimately enabling us to better navigate challenging market cycles. While we continue to target a 7% operating profit margin across the business cycle, it's important to recognize that tariffs have significantly and unexpectedly increased our costs and created substantial market uncertainty. They've negatively affected industry demand, our bookings, our backlog, and ultimately, our revenue. While we've taken meaningful actions to offset these impacts, we expect our near-term financial results to fall well below targeted levels. Looking ahead, our focus remains on taking actions that further strengthen our financial performance during an economic downturn. We're driving significant fixed cost reductions, building greater revenue resiliency, and investing in innovative new products that we believe will allow us to capture profitable market share over time. Generating solid operating cash flow and deploying capital accretively remain top priorities throughout the business cycle. For the full year 2025, we anticipate cash flow from operations to be solid but well below strong 2024 levels, reflecting significantly lower net income, partially offset by working capital improvements and cost-saving benefits. Strategic investments are core to our ongoing business strategy. In 2025, we expect capital expenditures to be between $50 million and $60 million, with investments focused on developing new products, manufacturing efficiencies, and IT infrastructure upgrades. These investments will help to streamline our operations, lower our financial breakeven point, and position the company for long-term profitable growth. As we generate cash, we're committed to our capital allocation framework, reducing debt, making strategic investments to support long-term profitable growth, and delivering sustainable shareholder returns. Now I'll turn the call over to Al for his closing remarks. Alfred Rankin: Thank you, Scott. We are operating in a period of extraordinary transition, facing both significant challenges and new opportunities. Today's environment is particularly shaped by the effects of elevated tariffs, which have raised our operating costs and made supply chain planning and pricing more complex. While these tariffs are short-term obstacles, we expect their impact to gradually stabilize as prices and tariffs come into equilibrium. This transitional phase is further complicated by a cyclical low in industry booking demand following an unprecedented surge in bookings during the COVID-19 pandemic. However, shipment levels have remained significantly higher than factory booking levels, which suggests to us that the time for new factory booking orders is now being reached. As booking demand returns to more typical levels, we will also need to navigate the shift in the competitive environment to increase value and standard applications with discipline and strategic foresight. Broader economic factors also influence our outlook. The manufacturing sector is showing shipment resilience, yet ongoing volatility and fluctuating interest rates continue to affect both investment decisions and customer purchasing behavior. These conditions highlight the need for a flexible and highly responsive forward-looking strategy, which allows us to adjust quickly to protect and build a long-term market position. In response to these near-term pressures, our strategic focus remains on transformation and sustainable growth. As Rajiv and Scott have described, we are both strengthening our core counterbalance business and investing in warehouse lift trucks, technology solutions, energy solutions, and attachments. These initiatives are helping us address current challenges and position our company to capture future opportunities. Our goal is to ensure both competitive advantage and market responsiveness in the next market upturn. We remain committed to providing optimal solutions and exceptional care for our customers. We are confident that the actions we are taking today will deliver lasting benefits to our customers, shareholders, and stakeholders. As we continue navigating this complex environment, we look forward to keeping you up to date on our progress and achievements. This concludes our prepared remarks. We will now open the call for questions. Operator: [Operator Instructions] Our first question today comes from Chip Moore from ROTH. Alfred Moore: I just wanted to ask about the current environment of demand uncertainty. Obviously, every cycle is unique. But just how would you compare this, I guess, with some of the prior ebbs and flows you've been through over the years? And how long do you think these deferrals could last? It sounds like you're thinking maybe you see some improvement perhaps early next year, but what are your thoughts? Rajiv Prasad: Yes. Maybe I'll get started, and others can make the comments, Chip. So I think the way that we see the market, the market is still pretty active. And what I mean by that is there are still requests for quote processes running. People are reaching out to our salespeople and our dealers. What is slow is decision-making. I think that's really driven by the volatility of the environment people find themselves in, whether they're worried about tariffs because, for instance, we have surcharges and some of our competition do, or our competition has adjusted their prices. So those things are difficult for our customers. And then the other piece is they're worried about interest rates and what dynamics that's going to have with that whole environment. There's a cutting environment, but there are other things going on. So I think one last thing I would say, Chip, is that a large number of our customers have still also been digesting trucks that they ordered in the past, which we're towards the end of it, but we've still got probably another quarter of production to go, which were ordered a while back. So if you look at it from a customer's point of view, they've been getting a series of trucks. They haven't been ordering anything because they've been digesting it. And I think that's coming to an end. So we expect slowly the market will start to recover. People will start to make those decisions because there is no avoiding it ultimately. But I think the next 2 to 3 months, maybe a little longer, are going to be that stop-start where processes are being implemented, but decisions are not being made. We've seen that open up a little bit over the last few weeks, but I think that's still got a ways to go. One last element is that our dealers were in a similar situation with their inventory, and those inventories have mostly worked their way down. So we're starting to get orders from our dealers now as well to restock. Alfred Moore: And I guess maybe a follow-up would be, if you do see more degradation, if we get some macro downturn, what actions could you take if needed? And what would really trigger that? Rajiv Prasad: Yes, Chip, I mean, we're pretty much looking at everything right now. All of our cost structures, how we're utilizing our plants, is there a better way to run the plants? We haven't come to conclusions. We will come to conclusions, I would say, in the next few weeks. So we are actually -- I mean, if you look at it from a production point of view, we're going to prepare for something that you're talking about, but still stay vigilant and ready to ramp up if we start to see bookings and backlogs grow. So we are going to take a bit of a conservative posture for the next quarter or two. Alfred Moore: Maybe just more long-term, as things do normalize, just strategically around some of the investments you're making, just more of an update on the new modular scalable platform, how that's progressing, any challenges? And then lithium ion, some strategy there. Just maybe speak to that. Rajiv Prasad: Yes. I think for the modular scalable product, if you look at our most important markets, North America and Europe, those products, the full scale has just got to those markets. Now we've had it in APAC, Asia Pacific, for a while, and Latin America for a while. And we've had very, very positive feedback from those markets. Now, as our dealers and some customers start to see this as a full-scale, we're getting similar responses from them. Based on some advice from our dealers, we have updated some of our nomenclature for them to better position the products in this new way. So we feel really good. We're still due to land and distribute significant numbers of these trucks, which will happen over the next 3 months or so. And then we'll start to get a better feel for how the customers are feeling about the more, what we're calling the prime match and the core match, which are, I would call the standard and the prime solutions in the field. And very similar to lithium-ion. We have one customer in North America, where we've put lithium-ion batteries in a large number of their operations. It's been very successful. And then we're launching our integrated lithium-ion solution, which we call the XT/LG or MX/LG. LG is lithium-ion, and the XT/MX is the name of the model. These will be rolled out both in North America and Europe. They're already in the Asia Pacific and are being very successful. So we feel really good about where lithium-ion is going. Early next year, we'll introduce a new set of electric trucks, which will come ready to -- ready with lithium-ion batteries. Operator: Our next question comes from Ted Jackson from Northland Securities. Edward Jackson: So the first question would be with regard to the weakness that you're seeing, I know you talked about it from more of a macro level with uncertainty and tariffs, and whatever. What about from a vertical level? So the Americas are the key ones. I mean, I've understood from people I've talked to that, in particular, like, for instance, the auto market has been a little soft because you have a few things and headwinds. One is the redeployment of assets around EVs that weren't necessarily needed. So there was some excess there. And then I'm also curious about what you've had with this aluminum issue and the impact on the auto markets, because there's a bunch of news with regard to Ford trucks and such. So I guess what I'm asking is, is there any kind of vertical for you that stands out in terms of some of the headwinds? And then is it auto? And if it's not, can you talk a little bit about how your auto exposure is and what's going on in there? Rajiv Prasad: I think in terms of material availability, I don't think we have any specific issues. I mean, we obviously have our normal, I would say, back to 2018, 2019 type of things where we get stock out because of some reason or suppliers are late with delivery, but no foundational issue with our materials or components. The other piece, though, is the cost of it. I mean, certainly, we're not so aluminum-intensive, but we are definitely steel and iron-intensive. And those are those have been a significant issue for cost, but also for transition. We were using global steel in North America, and we are transitioning to mostly U.S. steel as much as we can, especially in our Mexico operations. So that's good. I mean, from a customer's point of view, in terms of how they're being impacted, we've certainly seen a slowdown on the manufacturing side. You've touched on auto. We would also put most heavy manufacturing in that environment. I think retail has been fine. I think I would say even light manufacturing and distribution has been fine. Food and beverages have been okay. So I think a majority of it has been the heavy side. And obviously, that's very important to us when we're talking about the paper industry, the metals, and large equipment. So that's been the big customer issue. We're starting to see that ease a little bit. But as I said, it's very new. We haven't seen that spread yet. Edward Jackson: So what you're telling me then is so more larger equipment, more industrial. Then moving over to pricing pressure. You're seeing a lot of pricing pressure, you said, with EMEA and APAC. And does that mean you're not seeing as much pricing pressure in the Americas? And if so, why? I mean, is this maybe a sideline that you're actually benefiting from tariffs on that front because it's keeping cheaper Chinese stuff out? Rajiv Prasad: I think pricing pressure is everywhere. And normally, that happens when we are not fully utilizing our capacity. Everybody wants the extra capacity, extra share to drive it. What I was saying is that we didn't have all the right solutions in place, the scalable solutions. They were going through their validation process. We need to meet some very specific requirements, for instance, UL in North America, and we need to meet all the CE requirements in Europe. So that's taken a while, and now we are ready to deliver trucks. So it was more an availability issue, not so much that we didn't see the competitive pressure. Now I would say that certainly if I look at how the Chinese competitors are behaving in EMEA and APAC versus North America, there's definitely some inhibition in the U.S.A. because of the tariffs. Now we're also being -- some of these trucks that we compete with them on do also come from China for us. So it's not as if we have an advantage, but it's at least until recently, we didn't have the availability because of completing our validation processes. Edward Jackson: So when I listen to some of the things that same to the pricing pressure and your response to pricing pressure, the biggest response to pricing pressure for you, I mean, it's not that you're getting more aggressive in discounting. It's that you're going to have the new modular products going to allow you to be able to offer a lower-priced product. Rajiv Prasad: Absolutely. So the idea behind this whole scalability was to give the customer the product that works in their application. And if we can do that, they will get the productivity they need at the lowest cost of ownership. So that is the mission behind this whole scalability, and it's going to take a little bit of time to get that through to our network and our customers. But we've been working on that, getting everybody ready. We had some feedback. We've adapted to that feedback. And so I think now it's just a case of getting the products out in the hands of our customers so they can see how good these are and feel that it's the right option for them. But you're absolutely right. We expect our margins to be around our target margins because we're putting the right truck at the right customer, whereas in the past, we would have taken what we had and tried to put it into segments where it didn't work, compromising margin. Edward Jackson: My last question is, you referenced in the press release that you're going to be taking actions to increase your closure rates. The quoting activity is fine. Rajiv Prasad: Our participation is fine. What we are starting to do is work closely with customers to understand what their actual fleet position is. Customers focus on what their core value proposition is, and material handling for a number of them isn't. So we're going to do some extra work with them to show them that if they have older vehicles in their range, that could lead to being on the wrong side of the cost of ownership. Working with our partners, create some very specific solutions for them in terms of what's in the truck, but also how we finance it, et cetera. So there are a number of steps with really going customer by customer and looking at what it would take for the customer to get over the hurdle of not wanting to make this decision when there is all this volatility around them. Edward Jackson: So, just really more of a sharpening of the pencil, if you would. Rajiv Prasad: And making that whatever we're doing, much more focused on that customer rather than a general hey, look, let's do this, let's reduce price, or let's offer extended warranty, or let's do something else. I mean, if the customer is concerned about something, we want to be able to solve their problem. Operator: Our next question comes from Kirk Ludtke from Imperial Capital. Unknown Analyst: I just had a follow-up on the automation topic. Amazon's efforts to automate its facilities have been in the press recently. And I was hoping maybe you could expand on the pace of automation. Is it accelerating? And what impact does that have on your mix? Rajiv Prasad: Let's say, the interest in automation is enormous because some of the basic trends that we are seeing, availability of people, and if you do get people, what is their expertise like in driving trucks. The implementation has been slower than we would expect. And part of that is, as you automate, you have to redesign some work, you have to redesign some of the material flow. And so the approach we've taken is we are working with customers in a very partnered approach so that they can experience what automation can do for them. Once they realize that, then they're able to identify how they could reconfigure their operation to better suit. At the moment, we're working with some of the largest companies. I won't go into those. But all the ones that are talking and writing about automation, we are working with at the moment. I think it's one of those things that's going to take some time for people to really understand how best to deploy these technologies, how to implement them, and integrate them into their operations, and then it will take off. So I expect a buildup, but then a fast acceleration after that. Alfred Rankin: And Kirk, I would add that as that trend takes hold, those trucks, whether they be with our hybrid automation or our full automation, come with higher prices and higher margins generally. So the benefit will accrue to the customer and their total cost of ownership, but will come back to us as well from the sale of the unit and the ongoing revenue of the technology. Unknown Analyst: So you would consider this automation to be a positive for your business? Rajiv Prasad: Yes, absolutely. I mean, we have automated trucks. We have about 600 or 700 of them running around today. And we're building that up slowly. We have a primary product released now and in the marketplace, and then every 6 to 9 months, we'll be releasing another automated product. Unknown Analyst: And then a follow-up on the excess equipment that you see out there. And when do you expect that excess equipment to be depleted and orders to pick up in a quarter? Any guess as to timing? Rajiv Prasad: Yes. I think we're working with our network to get their excess inventory in the right place by the end of the year. So we expect our dealers, and they're showing signs of it, as I said, to start ordering from the factory rather than fulfilling from their inventory at their retail. And then customers, similarly, we understand our backlog. We also understand the industry backlog, and the majority of what customers were waiting for has already been delivered. But it takes a little bit of time to cut and some help from the customers to switch stands. They haven't been running RFQs, some of them, especially the heavy side of the business, and really making decisions. And that's where I talked to Ted about that we're putting some special activities in place to help customers get through that process efficiently. Unknown Analyst: And then lastly, if some of your customers' hesitancy on placing orders, are they waiting for interest rates to come down? Is that part of what is going on here? I'm sure there are a lot of things, but is that a meaningful factor? Rajiv Prasad: I think if I just think about ourselves, we're like them. We're looking at the ISM numbers. We're looking at what is going to happen to interest rates. We're looking at tariffs and the dynamics of tariffs and what this means to us. We're also looking at, in the worst conditions, what capital requirements do we have? And then once you've evaluated all of that, you go all right, what should I do now? The one thing that gets left out because it's not obvious to the customer is that their fleet has aged as well. And the downside of that is that their cost of operation is going to go up. And so we just want them to put that into the mix of their analysis and help them with it. So that's the way we feel we can move them off center because we can absolutely understand why those elements could create a bit of a freeze moment for making capital, at least capital expenditures that you feel that you have some flexibility with. Unknown Analyst: And then, if I could just sneak one last one in. On the tariff front, I think I heard you say you're not at an advantage. I mean, everyone is sourcing the same components from the same countries. You're not at an advantage, you're not at a disadvantage with your competitors with respect to your competitors? Rajiv Prasad: I think that's generally true, but there are definitely exceptions. I mean, I think if I just take South Korea as an example, so if you are a South Korean manufacturer, you can pretty much import parts from anywhere, mostly tax-free. You can build with Korean steel. And when you bring it in, you'll have to pay the duty on steel. And then on top of that, 15% duty on the truck. And I think the same thing from Japan. So I think those end up being -- whereas we're buying U.S. steel, which is because of the duty, those just I need to look at the price of steel and see what's happened. Then we're paying duty depending on where it comes, if a lot of our components come from globally, so China, India, other Far East and Eastern European countries, and you could be paying significant tariffs on those, especially from China and India. And then you build trucks with those in North America, I think under those conditions, we feel that's a bit of an unfair situation. Operator: Our next question comes from Jack Fitzsimmons from Prudential. Jack Fitzsimmons: I think you mentioned cancellations in the prepared remarks. So I was just wondering if you saw a pickup in cancellations in 3Q? And if so, you could just quantify that number? Rajiv Prasad: Yes. I mean, I think the majority of our cancellations are behind us. They were particularly difficult during, I would say, the first and second quarters. I think as our backlog has come down, those have really whittled out. So we wouldn't expect many cancellations looking -- there weren't many during this quarter, and we wouldn't expect many moving forward. And these cancellations were from orders that were made in late 2023 or 2024, so there weren't recent cancellations or recent orders. Jack Fitzsimmons: And then just one more for me. I guess in the release, you mentioned $40 million tariff impact in 3Q. Just a clarification, is that net of price increases and other actions? And if not, kind of how much of that cost were you able to mitigate? Rajiv Prasad: Maybe I can say a few words and then Scott can -- so don't forget, we build trucks in backlog. And as I already said, the market is pretty intense because of us not all fully utilizing our capacity. So we felt that there wasn't an easy way for us to go back. We tried to go back to the marketplace. Customers pretty much said, "Hey, we'll just go back to the market." So on these backlog trucks, we weren't able to get in any extensive way, any pricing on it. So we took the cost, and the majority of that $40 million was the tariff, and it mostly hit our P&L. And I think that still be somewhat the case next quarter because we're still in that situation. And then the things we are booking now are better from incorporating the tariffs in them, either as surcharges or price increases. So, Scott? Scott Minder: Well, I think you covered it pretty well. I would say, yes, the $40 million was the gross tariff cost, and we were able to offset less than half of that with the price in the quarter for the factors that Rajiv laid out. Operator: And our next question comes from Eric Ballanntine from CVC. Eric Ballantine: Just a follow-up on that question on the backlog and pricing. I know in the past, you've talked about that you want a profitable backlog and so forth. Now it sounds like there's still some unprofitable or lower-profitable new units in the backlog. Of the overall backlog, what kind of percent is related to those unprofitable, lower-profitable units? And so, when do we think that when you start showing the value of the backlog, $1 billion, $1.2 billion, whatever that number is, that's really 100% profitable backlog or pretty close to it? Rajiv Prasad: Yes. I think we'll get there in January, February. And I wouldn't say that these were bad margins when taken. Those were actually very good margins. But then we've had, as you heard, $40 million worth of tariffs, which went around when we took those bookings. So really, the untariffed covered backlog will be out of mostly by early first quarter next year in terms of what we're building. And of course, we are booking those right now. Eric Ballantine: And then on your comments about the kind of the fourth quarter and the profitability falling off there, I know you've talked about that you didn't want to go back to the days of EBITDA negative and so forth. I mean, obviously, EBITDA is falling off pretty significantly this year. I mean, are we looking at a situation where we could potentially be back into the EBITDA negative sometime next year until the industry flips around? Or are you pretty confident that you're going to stay at least positive? Rajiv Prasad: I think it's really difficult to tell at the moment. You saw us, we're pretty close to breakeven this quarter. I think as we've guided, we're going down, so going a little lower for the next couple of periods. So I think that's the best I can do right now. Eric Ballantine: And then just on the AI issue, I mean, your comments around you're working with the customers. Is it really the customers or the issue in the sense that you have the product that you can deliver to them that's functional, AI-automated, and so forth? It's really the customers that need to kind of figure out their plans and figure out how they want to operate. Or is there something else that's limiting you guys? Rajiv Prasad: Yes. The way we've designed our automated solution is really more from a material handling point of view. We are not software guys. We use software, but we're really material handling people. And we know to most effectively use -- again, we're using our own solutions in our own plants. So we know what it takes to optimally use it. And we think we have a role to play in that with our customers. We've always felt that with the solutions we put in place. That's part of our value proposition. That's how we can differentiate ourselves and give the customer a solution that is better value for them. So we're getting all of our salespeople, dealers, ready as well as customers to be able to do the same thing. And we have a pilot going on right now with a number of key customers working with our internal automation implementation team to pilot these concepts. And so far, we've had very, very positive feedback from those customers in what we're doing, and it is seen as very differentiated. Operator: With that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Andrea Sejba for closing remarks. Andrea Sejba: Thank you for your questions. A replay of our call will be available online later today, and the transcript will be posted on the Hyster-Yale website. If you have any follow-up questions, please feel free to reach out to me directly. My contact information is included in the press release. Thank you again for joining us today, and I'll turn the call over to Jamie to provide the replay information. Operator: And we would like you to note that to access the replay of today's event, you may dial (855) 669-9658 or (412) 317-0088 and use the access code of 479-9887. Again, that is 479-9887. Replay will be available approximately 1 hour after the completion of today's event, and we do thank you for attending the presentation.